Tax News

CCH (cch.taxgroup.com) reports:

The IRS has issued proposed regulations that address the allocation of pre-contribution gain or loss to a partner of a partnership (the "transferor partnership") that engages in an assets-over merger with another partnership (the "transferee partnership"). The regulations implement the principles previously articulated in Rev. Rul. 2004-43, 2004-1 CB 842, and will generally be effective for any distributions of property after January 19, 2005, if such property was contributed in an assets-over merger after May 3, 2004.
Under Code Secs. 704 and 737, a partner who contributes gain or loss property that is distributed to another partner within seven years, or who receives a distribution other than money within seven years of the contribution, may be required to recognize gain or loss. The proposed regulations provide that these same principles will apply to certain distributions occurring after a transferor partnership transfers all of its assets and liabilities to a transferee partnership in an assets-over merger.
The proposed regulations clarify that, while a partner contributing property to the transferor partnership will not be required to recognize gain or loss simply by virtue of the transferor partnership merging into a transferee partnership and distributing interests in the transferee partnership in liquidation of the former, the contributing partner will be required to recognize gain or loss on certain subsequent distributions by the transferee partnership within seven years. The proposed regulations specify how to compute such gain or loss, including cases where less than all of the originally contributed property is distributed. The seven-year period is measured by the date of the original contribution to the transferor partnership with two exceptions. First, where there is new built-in gain or loss as a result of the merger, that gain or loss may have to be recognized if the distribution occurs within seven years of the merger. Second, if the transferee partnership is subsequently merged into another partnership, the seven year period will commence from the date of the second merger with respect to any new built in gain or loss resulting from the second merger
There are exceptions to the application of the proposed regulations if the ownership of the transferor partnership and the transferee partnership are identical, with each partner owning an identical interest in each partnership, or there is no more than a 3-percent change in such interests.
A public hearing on the proposed regulations has been scheduled for December 5, 2007 at 10:00 a.m.
Propsed Regulations, NPRM REG-143397-05, 2007FED ¶49,760
Other References:
Code Sec. 704
CCH Reference - 2007FED ¶25,134B
CCH Reference - 2007FED ¶25,134G
Code Sec. 737
CCH Reference - 2007FED ¶25,426A
CCH Reference - 2007FED ¶25,426C
CCH Reference - 2007FED ¶25,426L
Tax Research Consultant
CCH Reference - TRC PART: 9,152.05
CCH Reference - TRC PART: 33,156