§705 — Determination of basis of partner’s interest

The section 704(d) rules differ from section 705(a) as they distinguish between allowed or disallowed losses. Section 705(a) does not make such a distinction.

Partnership Income Under section 702(a) a partner must recognize his distributive share of partnership income or loss; such recognition is reflected in the partner's adjusted basis in his partnership interest pursuant to section 705(a).

Because a short sale of securities is treated as an open transaction for income tax purposes, and income recognition is deferred until the transaction is closed with the replacement of the borrowed shares pursuant to section 1233,11 petitioner reasons that section 705 requires that any adjustments to the partners’ outside bases in their partnership interests be deferred until the short sale is closed.

nt he received. Sec. 731. See Harris v. - 1100 - Commissioner, T.C. Memo. 1988-195; Lynch v. Commissioner, T.C. Memo. 1982-305; Abraham v. Commissioner, T.C. Memo. 1970-304. A partner's adjusted basis in his partnership interest is determined under section 705. A partner's initial basis in a partnership is determined by the amount of money contributed and the adjusted basis of any other type of property contributed. Sec. 722. The partner's basis in the partnership is then adjusted upward for the

A partner's basis in a partnership is generally determined under section 705, captioned "Determination ofBasis ofPartner's Interest." Upon formation on January 1, 2008, SRM's basis in DCA presumably equaled Steven's basis in DCA.

705 details how to calculate basis. Specifically, a partner’s basis in his partnership interest is increased by, inter alia, the amount of his distributive share of taxable income. Sec. 705. Thus, to the extent petitioner recognized additional income as a result of the adjustment to Tri-City, he is also entitled to an upward adjustment of his

Respondent argues that in a situation such as this one, it is appropriate to apply the alternative rule set forth in the regulations under section 705 to determine Russell’s adjusted basis in his partnership interest.

Analysis Section 705 sets out rules for determining the adjusted basis of a partner’s interest in a partnership.

See §§ 705, 722, 733, 752; see also Rawls Trading, L.P. v. Commissioner, 138 T.C. 271, 275 n.10 (2012). A partner’s contribution of a promissory note to a partnership in which he is a partner does not increase the partner’s outside basis. See VisionMonitor Software, LLC v. Commissioner, T.C. Memo. 2014-182, at *10 (and cases cited thereat). The amount o

at 258 (codified as amended at 42 U.S.C. sec. 2000e- (continued...) - 8 - [*8] Appeals in its current form exists pursuant to section 7804(a), which provides: SEC. 7804(a). Appointment and Supervision.--Unless otherwise prescribed by the Secretary, the Commissioner ofInternal Revenue is authorized to employ such number ofpersons

Although a partner's basis in a partnership may include the adjusted basis ofproperty, basis does not include the value ofservices performed unless and until the value ofthose services has been subjected to taxation. Haffv. Commissioner, T.C. Memo. 2015-138, slip op. at *5 (citing Hutcheson v. Commissioner, 17 T.C. 14, 19 (1951)). Accordi

Under section 705 a partner's basis generally is composed ofcontributions to the partnership, s_e_e sec. 722, plus his or her distributive share ofpartnership income, see sec. 703(a), less distributions and his or her distributive share ofpartnership losses or expenditures, see sec. 733; sec. 1.705-1(a)(2), Income Tax Regs. Basis does not include the val

In addition, any liquidating or nonliquidating distribution would also affect the partner's adjusted basis in his partnership interest. See generally sec. 733. Aside from the unsigned partnership return for Nexes for 2004 and some scattered documents relating to Nexes that are irrelevant to our inquiries under sections 705 and 733, petiti

tatice, inflating the outside basis ofa partnership--the partnership that woùld become the . ó tinued (p oviding that the basis ofa partner's partnership interest is decreased to the extent ofthe partner's decreased share ofpartnekship liabilities); sec. 705 (providing rules for subsequent adjustmentsto the basis ofa partrier's partnership interest, following its.initial determination at the time oforiginal acquisition to reflect the partner(cid:0)541hipo'speratiiig results and the partner's dis

t is increased to the extent ofthe partner's increased share ofpartnership liabilities); sec. 752(b) (providing that the basis ofa partner's partnership interest is decreased to the extent ofthe partner's decreased share ofpartnership liabilities); sec. 705 (providing rules for subsequent adjustments to the basis ofapartner's partnership interest, following its initial determination at the time oforiginal acquisition, to reflect the partnership's operating results and the partner's distributive

increased to the extent of the partner’s increased share of partnership liabilities); sec. 752(b) (providing that the basis of a partner’s partnership interest is decreased to the extent of the partner’s decreased share of partnership liabilities); sec. 705 (providing rules for subsequent adjustments to the basis of a partner’s partnership interest, following its initial determination at the time of original acquisition, to reflect the partnership’s operating results and the partner’s distributi

The basis of an interest in a partnership acquired by a contribution of property, including money, is the amount of money and adjusted basis of such property to the partner at the time of contribution, increased by the amount of any gain recognized under section 721(b) at the time. Sec. 722. Any increase in a partner’s share of liabilitie

Respondent argues that in a situation such as this one, it is appropriate to apply the alternative rule se: forth in the regulations under section 705 to determine Russell's adjusted basis in his partnership interest.

- 8 - Moreover, the legislative history states, generally, that the basis adjustment rules are analogous to those provided for partnerships under section 705 and require that the basis of a shareholder in an S corporation will be adjusted for income and losses for any corporate tax year before the distribution rules apply for that year.

income and deductible and nondeductible expenses will serve, respectively, to increase and decrease a subchapter S shareholder's basis in the stock of the corporation. These rules generally will be analogous to those provided for partnerships under section 705. Under these rules, income and loss for any corporate taxable year will apply to adjust basis before the distribution rules apply for that year. * * * [Emphasis added.] H. Rept. 97-826, at 17 (1982); 1982-2 C.B. 730, 738; S. Rept. 97- 640

income and deductible and nondeductible expenses will serve, respectively, to increase and decrease a subchapter S shareholder’s basis in the stock of the corporation. These rules generally will he analogous to those provided for partnerships under section 705. Under these rules, income and loss for any corporate taxable year will apply to adjust basis before the distribution rules apply for that year. * * * [H. Rept. 97-826, at 17 (1982); 1982-2 C.B. 730, 738; S. Rept. 97-640, at 18 (1982); 19

Moreover, the legislative history states, generally, that the basis adjustment rules are analogous to those provided for partnerships under section 705 and require that the basis of a shareholder in an S corporation will be adjusted for income and losses for any corporate tax year before the distribution rules apply for that year.