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A number of problems have emerged, particularly for LLCs treated as disregarded entities, including a controversial decision by the IRS to treat the disregarded entity as the one responsible for payroll taxes for its employees, and questions about the status of recourse liabilities of a disregarded entity, particularly one that owns a partnership interest. This Portfolio analyzes not only the relevant statutory and regulatory materials, but also the large body of case law, revenue rulings, and other IRS pronouncements, including technical advice memoranda and private letter rulings, that are all part of this, unfortunately complex, body of tax law. Assumption of § 1.752-7 Liability by Another Partner IV. Liquidating Distribution to a § 1.752 Liability Partner 4. Distributions, usually liquidating distributions, are important components of major partnership restructurings, including divisions, mergers, incorporations, and changes in legal form. Partnership's Inside Basis Adjustment under § 734(b) 2. Tiered Partnerships (1) Adjusting Through the Tiers (2) Distribution of Lower-Tier Partnership Interest b. Other Property Distributed to Contributing Partner-§ 737 F. As with all other aspects of partnership taxation, the dual nature of a partnership for tax purposes—as at times an aggregation of its partners, and at times an entity—complicates the discussion, particularly because no one, including the author, has been able to articulate a comprehensive statement of when the aggregate, and when the entity, aspect should predominate. Distributee's Basis, Holding Period and Character 1. Inside Basis Reduction for Corporation Distributed to Controlling Corporate Partner 2. Basis Adjustment Without § 754 Election: Current Distributions-§ 732(d) D. All but the traditional general partnership have limited liability, and a general partnership can, in most states, achieve limited liability by a simple filing to become an LLP, but, particularly for professionals that limited liability protects against vicarious liability but not against liability for one's own malpractice, including, of course malpractice in giving advice related to partnership tax matters. All but the general partnership can also have continuity of life, centralized management and free transferability of interest, subject only to the usual practical problems of transferring interests in closely held businesses.
The tax consequences of liquidating distributions are discussed in Part IV, including the different rules for the basis of distributed property, and the effect on the partnership's inside basis of gain or loss recognized by the distributee partner. Payments and Transfers That Are Not Distributions 1. M., Partnerships—Allocation of Liabilities; Basis Rules; 718 T. M., Partnerships—Disposition of Partnership Interests or Partnership Business; Partnership Termination; and 720 T. For a discussion of the specific tax issues related to limited liability companies, see 725 T. For a discussion of the specific tax issues raised by foreign partners or foreign partnerships, see 910 T. Section 704(c) (and Reverse § 704(c)) Adjustments C. Basis Adjustment Without § 754 Election: Liquidating Distributions-§ 732(d) a. Distribution and Contribution of Partnership Assets (Assets-Up) b.