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Discussion:Abandonment of partnership interests

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Discussion Forum Index --> Advanced Tax Questions --> Abandonment of partnership interests


Discussion Forum Index --> Tax Questions --> Abandonment of partnership interests

Bretsharon (talk|edits) said:

23 August 2013
Been abandoning partnership interests and taking ordinary loss for years. Also, for corporate stock, I've been putting worthless corporate stock in partnerships and after a time abandoning the partnership interest and taking ordinary losses instead of abandoning the stock and getting capital losses. Ignoring the basis issues and FMV for a moment.... What has been the experience of we multitudes (us multitudes? ..maybe??)

Incognito (talk|edits) said:

23 August 2013
Are you posting to TA from a bar? It must be pretty dead there.

Wiles (talk|edits) said:

23 August 2013
Can I put my treadmill in a partnership and then abandon it?

Bretsharon (talk|edits) said:

23 August 2013
I wish I was texting from a Bar. Actually, this abandoning partnership interests in TEFRA partnerships was very exciting 20 years ago. Not so much anymore.

Bretsharon (talk|edits) said:

23 August 2013
You asked......Can I put my treadmill in a partnership and then abandon it? Not likely, it needs to be investment or profit motive....

Wiles (talk|edits) said:

23 August 2013
I was planning on renting it out to other tax preparers in my office during tax season.

Ckenefick (talk|edits) said:

23 August 2013
Not likely, it needs to be investment or profit motive....

So, how does contributing worthless stock pass this test? IRS could obviously attack this tactic on numerous fronts.

Wiles (talk|edits) said:

23 August 2013
Each tax preparer will get a "Don't Be a Dilbert" card with 10 boxes on it. For each rental, we will punch a hole in one of their boxes. After all 10 boxes have been punched, they will get to pick a prize out of the prize box. My partner plans on filling the box with some leftover Christmas decorations and half-used paint cans from our garage.

Bretsharon (talk|edits) said:

23 August 2013
So, how does contributing worthless stock pass this test? ...it wasn't the stock that was abandoned, it was the partnership that owned the stock that was abandoned......I have found no support, and yes the IRS doesn't like it, but there is no guidance... I will write some more but I have to go back a few years and detail what happened......

Ckenefick (talk|edits) said:

23 August 2013
...it wasn't the stock that was abandoned,

I get it. No business motive for the stock contribution, just like no business motive for the treadmill donation.

Michaelstar (talk|edits) said:

23 August 2013
Bretsharon - I am sure you have read Rev.Rul.93-80, 1993-2 CB 239 multiple times or at least I hope so. My reading of this strongly implies that most times - the abandonment of a partnership interest does in fact not allow an ordinary loss but in most cases only a capital loss is allowed. I would hate for your post to give the impression to the masses that taking an ordinary loss by the abandonment of a partnership interest is a walk in the park.....

Certainly available in some situation - but for most - it is not.

Question to you - have any of your "abandoning partnership interests and taking ordinary loss for years" even been audited?

PHIL MOODY (talk|edits) said:

23 August 2013
I had client abandon partnership interest this year. Worked with a tax attorney. We have lots of documents. We made absolutely sure there was not a "sale". Also very important is that partner does not get relieved of ANY liability, if so, then it is a sale, thus capital loss. Critical liability issues we found were: payroll taxes;sales tax; property tax; utility bills; accrued payroll, lots of small liabilities that often are not reflected on the Balance Sheet. TP ended up contributing big bucks to partnership to cover "his share" of liabilities.

BTY: our fee was over $20K and Atty was about $35K....and you should see our engagement letter.

Bretsharon (talk|edits) said:

23 August 2013
I will reconsider the above and get back to all of you. (1) On reading 93-80; not recently... (2) Post, "I would hate for your post to give the impression..." I absolutely agree. This is the real utility of this blog.... (3) What does "BTY" stand for?? (4) ..on audits, no, but much more than that, refund claims and litigation ... (not in the Tax Court).. (5) In the interest of full disclosure, it wasn't me, but I prepared many of the refund claims upon which these claims were litigated. (6) I will get some citations....

Bretsharon (talk|edits) said:

23 August 2013
Self Serving memo/advertisement: gilpingivhan.com/.../Tax%20Tips%20-%20Abandonment%20vs%20Wo...‎, or google, more later today..

Terry Oraha (talk|edits) said:

23 August 2013
Substance-over-form and step-transaction doctrine are the rules and reasons why you cannot contribute worthless stock to a partnership and then abandon the partnership and get an ordinary loss.

I've also read somewhere, I can't remember where it was, that property acquired with the intent of abandonment would not be eligible for an abandonment loss. Can't recall where that was, but I imagine it's because of step-transaction doctrine.

Ckenefick (talk|edits) said:

23 August 2013
http://gilpingivhan.com/pdf/resources/Tax%20Tips%20-%20Abandonment%20vs%20Worthlessness%20(00224527).PDF

Here's the full line referenced by Bretsharon. It really says nothing about the subject matter.

IRS could attack it under the anti-abuse provision in Subchapter K. IRS could say it was worthless before it was contributed. IRS could (maybe) say transaction was designed to give inflated basis (although a true carryover basis) on the partnership interest and would argue basis is zero. No "economic substance" other than tax benefits, as Terry says. IRS might even argue that, with respect to the contributed stock, the "partner" isn't even a partner (this seems to be the latest craze in the tax credit arena). Sham transaction. You name it. Of course, IRS would assert an unreasonable position, which was not based on any authority. IRS would win this case, hands down, with more than one of these arguments. IRS would likely go after promoter(s) too.

Bretsharon (talk|edits) said:

6 September 2013
Conclusionary Comment.. I reviewed the matter again with my much more experienced tax lawyer. In his experience, he agrees that the technique is a problem if there is debt, but his cases were ones which it had already been litigated by other attorneys and the client lost. Most were TEFRA cases and he was able to show that the tax court did not have jurisdiction because the issue was really an 'other item" which there should have been a NOD sent and it wasn't. Many others had procedural snafus. He confirmed that the rev rulings were correct, so if you have debt you have a problem. His cases (I prepared the refund claims) did not have debt problems. .............He indicated the first couple of these claims were challenged by the IRS, but after a few the IRS no longer objected and then there were no more problems with the IRS....What really irked the IRS was that most of these were barred by a SOL, but procedurally, he prevailed for many technical reasons. What we better was the clients had already paid in the amounts owed and his fee was "found money" ...

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