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§267(d) Offset Associated with Sale of a Partnership Interest to a Related Party May Be Used Against Gain on Sale of Asset


9/24/15

Synopsis

A partner that has a §267(d) offset associated with a partnership interest can have a different tax outcome if a partnership asset is sold at a gain by the partnership instead of the asset being distributed to the partner and subsequently sold.

Issue
If a partnership interest is sold at a loss to a related party, the loss is disallowed under IRC §267(a)(1).  IRC §267(d) permits the disallowed loss to be offset against future gain from the sale of the partnership interest (the “§267(d) offset”).  However, if a partnership asset is sold at a gain, a partner with a §267(d) offset associated with a partnership interest cannot use the offset against the gain allocated to that partner. This is due to the fact that the partner has not sold or disposed of the partnership interest within the meaning of §267(d)(2). 

However, based on the parenthetical language in IRC §267(d)(2), if the asset is instead distributed to the partner such that the partner’s basis in the distributed asset is determined with respect to the basis of the partnership interest under §732(a)(2) or §732(b), the §267(d) offset should transfer from the partnership interest to the distributed asset and can be used to offset the gain on the asset.

Contact
For more information, please contact Thomas Nice, Partner, at thomas.nice@cohnreznick.com or at 301-961-5542, or Daniel King, Senior Manager, at daniel.king@cohnreznick.com or at 301-280-3069.


Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

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