IRS: Carryover Basis Rules Do Not Apply to Distribution of House to Partner

The IRS has issued ILM 200650014 (9/7/06), ruling that the non-recognition provision of § 731 and substituted basis rule of § 732(b) do not apply when a partnership acquires residential real estate that has no relation to a partnership’s business activities, solely for purposes of immediately distributing the real estate to a partner in liquidation:

[A] carry-over basis is not appropriate for a unique parcel of residential property that apparently was selected by the distributee, acquired by the partnership immediately before the distribution, solely for the purpose of the distribution, and was unrelated to the partnership’s business activities.

(Hat Tip: Stuart Levine.)

About the Author

Paul Caron

Paul Caron was named Duane and Kelly Roberts Dean of Pepperdine University School of Law on June 1, 2017. Dean Caron joined the Pepperdine faculty in 2013 after serving as the Dorothy and Leonard Straus Distinguished Visiting Professor of Law in the spring semesters of 2010 through 2013. He served as Associate Dean for Research and Faculty Development at Pepperdine in 2015-2017. Before coming to Pepperdine, he was Associate Dean of Faculty and Charles Hartsock Professor of Law at the University of Cincinnati College of Law.