§752 — Treatment of certain liabilities

Kohn pursuant to section 752(b); (3) whether petitioners are entitled to deduct Mr.

Section 752 applies only to partnership liabilities.

Section 752 applies only to partnership liabilities.

Section 752 applies only to partnership liabilities.

Section 752 applies only to partnership liabilities.

752 provides that "[a]ny increase in a partner's share ofthe liabilities ofa partnership * * *shall be considered as a contribution ofmoney by such partner to the partnership." Under sec.

3°Because we hold respondent's determination to proceed with the levy on the Poland property was ar abuse of discretion, we need not consider petitioners' argumer t that respondent disregarded our order to create a proper record and instead conducted a de novo review of the groi.nds for asserting a nominee ownership

a recourse loan shared by all partners. Further, the section 704 regulations petitioners cite govern allocations attributable to nonrecourse liabilities, not the allocation of the liabilities themselves, which are governed by the regulations under section 752. Under the section 752 regulations, a partnership liability is recourse to the extent a partner bears the economic risk of loss and nonrecourse to the extent no partner bears the economic risk of loss.24 When the lender is also a partner,

a recourse loan shared by all partners. Further, the section 704 regulations petitioners cite govern allocations attributable to nonrecourse liabilities, not the allocation of the liabilities themselves, which are governed by the regulations under section 752. Under the section 752 regulations, a partnership liability is recourse to the extent a partner bears the economic risk of loss and nonrecourse to the extent no partner bears the economic risk of loss.24 When the lender is also a partner,

by $150. At the same time, however, B’s share of liabilities of the partnership increases by $150. Only the net increase or decrease in B’s share of the liabilities of the partnership and B’s individual liabilities is taken into account in applying section 752. Because there is no net change, B is not treated as having contributed money to the partnership or as having received a distribution of money from the partnership under paragraph (b) or (c) of this section. Therefore B’s basis for B’s pa

ion short-term capital gain for the period ended Dec. 31, 1992, on the alternative grounds that: (1) FPL’s initial investment in S was a sham in substance; and/or (2) S failed to properly compute its substituted basis (from its partners) pursuant to sec. 752, I.R.C. FPL filed a timely petition for readjustment in its capacity as a notice partner of S. Held: FPL’s investment in S was not a sham in substance inasmuch as FPL invested in S in order to achieve legitimate business objectives independe

a partnership by an increase in their share of partnership liabilities. See also sec. 1.752-1(b), Income Tax Regs. Respondent determined that the Partnership had no debt during 1991 or 1992 that would allow the partners to increase their bases under section 752. Petitioner argues that the $400,000 owed to LAG was a Partnership debt that increased each partner’s basis in the Partnership during 1991 and 1992. Petitioner acknowledges that LAG transferred the $400,000 directly to the Corporation and

nanced, and the proceeds of the loan are distributed to the contributing partner, there is not a disguised sale to the extent the distributed proceeds are attributable to indebtedness properly allocable to the contributing partner under the rules of section 752 (i.e., to the extent the contributing partner is considered to retain substantive liability for repayment of the borrowed amounts), since, in effect, the partner in this case has simply borrowed through the partnership.

00 Line 12 of Schedule L includes the following “Other assets”: Beginning Ending - 17 - Notes receivable--investors $182,000 $182,000 According to Dakotah Hills’ 1989 return, the following persons held an interest in the partnership: - 18 - Joined Sec. 752 Beginning Ending Partner Interest Settlement Adjustment Liabilities Capital Capital Bankruptcy Estate of D. R. Jenkins 0.0500% $8,363 ($337) ($397) Bankruptcy Estate of Renee Jenkins 0.0500% 8,363 (337) (397) Bankruptcy Estate of Tim Shaftel 0

00 Line 12 of Schedule L includes the following “Other assets”: Beginning Ending - 17 - Notes receivable--investors $182,000 $182,000 According to Dakotah Hills’ 1989 return, the following persons held an interest in the partnership: - 18 - Joined Sec. 752 Beginning Ending Partner Interest Settlement Adjustment Liabilities Capital Capital Bankruptcy Estate of D. R. Jenkins 0.0500% $8,363 ($337) ($397) Bankruptcy Estate of Renee Jenkins 0.0500% 8,363 (337) (397) Bankruptcy Estate of Tim Shaftel 0

00 Line 12 of Schedule L includes the following “Other assets”: Beginning Ending - 17 - Notes receivable--investors $182,000 $182,000 According to Dakotah Hills’ 1989 return, the following persons held an interest in the partnership: - 18 - Joined Sec. 752 Beginning Ending Partner Interest Settlement Adjustment Liabilities Capital Capital Bankruptcy Estate of D. R. Jenkins 0.0500% $8,363 ($337) ($397) Bankruptcy Estate of Renee Jenkins 0.0500% 8,363 (337) (397) Bankruptcy Estate of Tim Shaftel 0

00 Line 12 of Schedule L includes the following “Other assets”: Beginning Ending - 17 - Notes receivable--investors $182,000 $182,000 According to Dakotah Hills’ 1989 return, the following persons held an interest in the partnership: - 18 - Joined Sec. 752 Beginning Ending Partner Interest Settlement Adjustment Liabilities Capital Capital Bankruptcy Estate of D. R. Jenkins 0.0500% $8,363 ($337) ($397) Bankruptcy Estate of Renee Jenkins 0.0500% 8,363 (337) (397) Bankruptcy Estate of Tim Shaftel 0

00 Line 12 of Schedule L includes the following “Other assets”: Beginning Ending - 17 - Notes receivable--investors $182,000 $182,000 According to Dakotah Hills’ 1989 return, the following persons held an interest in the partnership: - 18 - Joined Sec. 752 Beginning Ending Partner Interest Settlement Adjustment Liabilities Capital Capital Bankruptcy Estate of D. R. Jenkins 0.0500% $8,363 ($337) ($397) Bankruptcy Estate of Renee Jenkins 0.0500% 8,363 (337) (397) Bankruptcy Estate of Tim Shaftel 0

00 Line 12 of Schedule L includes the following “Other assets”: Beginning Ending - 17 - Notes receivable--investors $182,000 $182,000 According to Dakotah Hills’ 1989 return, the following persons held an interest in the partnership: - 18 - Joined Sec. 752 Beginning Ending Partner Interest Settlement Adjustment Liabilities Capital Capital Bankruptcy Estate of D. R. Jenkins 0.0500% $8,363 ($337) ($397) Bankruptcy Estate of Renee Jenkins 0.0500% 8,363 (337) (397) Bankruptcy Estate of Tim Shaftel 0

00 Line 12 of Schedule L includes the following “Other assets”: Beginning Ending - 17 - Notes receivable--investors $182,000 $182,000 According to Dakotah Hills’ 1989 return, the following persons held an interest in the partnership: - 18 - Joined Sec. 752 Beginning Ending Partner Interest Settlement Adjustment Liabilities Capital Capital Bankruptcy Estate of D. R. Jenkins 0.0500% $8,363 ($337) ($397) Bankruptcy Estate of Renee Jenkins 0.0500% 8,363 (337) (397) Bankruptcy Estate of Tim Shaftel 0

00 Line 12 of Schedule L includes the following “Other assets”: Beginning Ending - 17 - Notes receivable--investors $182,000 $182,000 According to Dakotah Hills’ 1989 return, the following persons held an interest in the partnership: - 18 - Joined Sec. 752 Beginning Ending Partner Interest Settlement Adjustment Liabilities Capital Capital Bankruptcy Estate of D. R. Jenkins 0.0500% $8,363 ($337) ($397) Bankruptcy Estate of Renee Jenkins 0.0500% 8,363 (337) (397) Bankruptcy Estate of Tim Shaftel 0

00 Line 12 of Schedule L includes the following “Other assets”: Beginning Ending - 17 - Notes receivable--investors $182,000 $182,000 According to Dakotah Hills’ 1989 return, the following persons held an interest in the partnership: - 18 - Joined Sec. 752 Beginning Ending Partner Interest Settlement Adjustment Liabilities Capital Capital Bankruptcy Estate of D. R. Jenkins 0.0500% $8,363 ($337) ($397) Bankruptcy Estate of Renee Jenkins 0.0500% 8,363 (337) (397) Bankruptcy Estate of Tim Shaftel 0

Rather, he argues, the Code requires OPLP to include section 752 liabilities in calculating OPLLC’s basis adjustment under section 743(b), resulting in petitioner’s overstated basis.

§ 752; see also Duffy v. Commissioner, T.C. Memo. 2020-108, at *47 (“[A] partner’s payment of partnership expenses can be treated as a contribution to the partnership, with the paying partner then entitled to deduct his allocable share of the expense.”). A partner’s basis is decreased by the partner’s distributive share of partnership losses

Treasury regulations under section 752 provide for the characterization of a liability as recourse or nonrecourse.

Section 752 achieves that result by treating increases in the partner's share ofpartnership liabilities as cash contributions and decreases as cash distributions. On brief, respondent acknowledges that Mr. Duffy made capital contributions to Impact Medical of$50,000 and $450,000. He does not explain why, even leaving aside Mr. Duffy's share ofthe p

6221, 6231(a)(3); see also Woods, 571 U.S.

6221, 6231(a)(3); see also Woods, 571 U.S.

1.752-1, Income Tax Regs. In short, the fact that a partner is not personally liable for a partnership's debt does not mean -19- that his partnership interest is not "subject to a debt" for purposes ofsubchapter For these reasons, we conclude that section 1.163-8T(c)(3)(ii), Temporary Income Tax Regs., supra, in conjunction with Not

lity to repay the loan. E at *3. For purposes ofcalculating the investor's outside basis in the second LLC, the investor would treat the obligation to repay the premium portion ofthe loan as contingent and not as a liability assumed by the LLC under section 752. Id. As a result the investor calculated his outside basis as equal to the premium plus his capital contribution, resulting in an inflated outside - 5 - [*5] basis. Id.; see secs. 722 (providing that a partner's outside basis in a partner

ecreased by the amount of a contingent liability contributed to or assessed by a partnership. See Helmer v. Commissioner, T.C. Memo. 1975-160 (holding that a contingent obligation, such as an obligation under a sold option, was not a liability under sec. 752 because a partnership's obligation under the option does not become fixed until the option is exercised). -7- [*7] Sentinel generally collected its share and BDO's share ofthe fees via consulting agreements between clients and New Vista or S

This step is ofextreme importance in Son-of-BOSS deals--a partner who gets his partnership to assume a liability has to reduce his basis in the partnership by the amount ofthat liability. See id. subsec. (b). Doing so would, however, defeat the goal ofinflating basis to create a giant artificial loss. So when Kalkhoven and Pettit did this

This step is ofextreme importance in Son-of-BOSS deals--a partner who gets his partnership to assume a liability has to reduce his basis in the partnership by the amount ofthat liability. See id. subsec. (b). Doing so would, however, defeat the goal ofinflating basis to create a giant artificial loss. So when Kalkhoven and Pettit did this

s. 301.7701- 2(a), 301.7701-3(a) and (b)(1), Proced. & Admin. Regs. - 5 - [*5] Son-of-BOSS transactions lacked economic substance, American Boat should be disregarded for tax purposes, and the short sale obligations were liabilities for purposes ofsection 752. Respondent made adjustments to American Boat's ordinary income, capital contributions, outside basis, portfolio income, and mvestment mcome. III. American Boat FPAA Litigation American Milling contested the adjustments in the American Boat

The partner's capital account also decreases by the amount ofthe deemed distribution. Sec. 1.704-1(b)(2)(iv)(h)(4), Income Tax Regs. Ofcourse, ifa partnership were to assume a partner's obligation that did not qualify as a "liability" for purposes ofsec. 752, as was intended here, then the downward adjustments ofoutside basis and capital would not occur. '6Under sec. 723, a partnership's basis in contributed property is "the (continued...) - 24 - comparison, its partners' aggregate adjusted basi

partner’s capital account also decreases by the amount of the deemed distribution. Sec. 1.704-l(b)(2)(iv)(6)(4), Income Tax Regs. Of course, if a partnership were to assume a partner’s obligation that did not qualify as a “liability” for purposes of sec. 752, as was intended here, then the downward adjustments of outside basis and capital would not occur. Under sec. 723, a partnership’s basis in contributed property is “the adjusted basis of such property to the contributing partner at the time

This step is ofextreme importance in Son-of-BOSS deals--a partner who gets his partnership to assume a liability has to reduce his basis in the partnership by the amount ofthat liability. See sec. 752(b). Doing so would, however, defeat the goal ofinflating basis to create a giant artificial loss. So when Markell did this, it was setting

nership on September 15, 2001, listed Charlevoix's address as 1142 Charlevoix Ave., #1, Petoskey, Michigan 49770 (Petoskey address).5 A Schedule K-1, Partner's Share 4Apparently, the partners had not treated the "short" options as a liability under sec. 752. 5Some documents refer to the street address ofthe Petoskey address as "1142 Charlevoix Ave., #1", while other documents refer to that street address as "1142 Charleviox Ave. 1" or "1142 Charlevoix Ave., Apartment 1". We refer to (continued..

ster characterized the Rawls transaction as involving the "generation oflosses to offset other gains". Mr. Poster reviewed and agreed with the Lewis Rice opinion. He advised Mr. Rawls that the short sale obligation was not a liability for purposeslofsection 752. He also advised Mr. Rawls that it was appropriate to report the Group losses on the Family return. Mr. Poster felt it was proper to report the losses from both transactions despite the lack ofan-opinion letter for the April transaction.

In the draft, Lewis Rice concluded that: (1) the obligation to close the short sale was not a partnership tax liability within the meaning ofsection 752, (2) the partnership-abuserules set forth in section 1.701-2, Income Tax Regs., would not apply to the Group transactions, and (3) thejudicial substance over form and step transaction doctrines would not apply to the Group transactions.

g basis. This results in high-basis assets that produce large tax--but not out-of- pocket--losses. * * * 7 In Helmer v. Commissioner, T.C. Memo. 1975-160, we held that a contingent obligation, such as a short or sold option, is not a liability under sec. 752 because a partnership's obligation under the option does not become fixed until the option is exercised. - 5 - advisory firm to discuss the client's possible engagement in a Son-of-BOSS transaction. At some point Mr. Grasso reviewed a draft

1975-160, requires a holding that "a contingent obligation such as the Sold Euro Option each ofthe Logan Trusts sold to AIG falls short ofa fixed 'liability' for section 752 and other federal income tax purposes".

qual to the gross premium in the hands of both the Logan Trusts and Tigers Eye, (3) treating the assignment to and assumption by Tigers Eye of the contingent obligation to satisfy the sold option separately from the purchased option for purposes of section 752, and (4) disregarding the contingent obligation to satisfy the sold option in determining outside basis in the partnership under the authority of Helmer v.

er characterized the Rawls transaction as involving the “generation of losses to offset other gains”. Mr. Poster reviewed and agreed with the Lewis Rice opinion. He advised Mr. Rawls that the short sale obligation was not a liability for purposes of section 752. He also advised Mr. Rawls that it was appropriate to report the Group losses on the Family return. Mr. Poster felt it was proper to report the losses from both transactions despite the lack of an opinion letter for the April transaction.

A Son-of-BOSS transaction seeks to exploit the narrow definition of a partnership liability under section 752 to conjure up a tax loss.

A Son-of-BOSS transaction seeks to exploit the narrow definition of a partnership liability under section 752 to conjure up a tax loss.

ting gain or loss on the sale of the foreign currency, the investor would report a basis in the foreign currency equal to the purportedly paid premium to acquire the long contract and would not treat the short contract as a liability for purposes of section 752. Starting around 2000, Greenberg began organizing and coordinating transactions that were the same as or substantially similar to SOS transactions (SOS-like transactions) for KPMG clients (clients) and KPMG partners (partners). Greenberg

With regard to foreign registered mail, section 752.13 of the U.S.

A Son-of-BOSS transaction seeks to exploit the narrow definition of a partnership liability under section 752 to conjure up a tax loss.

Section 752.13 of the U.S. Postal Service International Mail Manual, Issue 37, June 7, 2010, states with regard to foreign registered mail: "All mail registered by the country of origin must be handled in the domestic First-Class Mail mailstream from the exchange office to the office of delivery." Thus, once the foreign registered mail arrives at t

A Son-of-BOSS transaction seeks to exploit the narrow definition of a partnership liability under section 752 to conjure up a tax loss.

A Son-of-BOSS transaction seeks to exploit the narrow definition of a partnership liability under section 752 to conjure up a tax loss.

A Son-of-BOSS transaction seeks to exploit the narrow definition of a partnership liability under section 752 to conjure up a tax loss.

A Son-of-BOSS transaction seeks to exploit the narrow definition of a partnership liability under section 752 to conjure up a tax loss.

A Son-of-BOSS transaction seeks to exploit the narrow definition of a partnership liability under section 752 to conjure up a tax loss.

ting gain or loss on the sale of the foreign currency, the investor would report a basis in the foreign currency equal to the purportedly paid premium to acquire the long contract and would not treat the short contract as a liability for purposes of section 752. Starting around 2000, Greenberg began organizing and coordinating transactions that were the same as or substantially similar to SOS transactions (SOS-like transactions) for KPMG clients (clients) and KPMG partners (partners). Green-berg

peake ' s promissory note in 2001 . Chesapeake reported a $524 million capital gain on its consolidated Federal tax return for 2001 . Chesapeake determined that the termination of the'indemnity resulted in WISCO receiving a deemed distribution under section 752 . Chesapeake also reported the $196 million tax cost, payment it received from GP as ordinary income on its consolidated Federal tax return for 2001 . Respondent issued Chesapeake the deficiency notice for 1999 . In the deficiency notice,

hesapeake’s promissory note in 2001. Chesapeake reported a $524 million capital gain on its consolidated Federal tax return for 2001. Chesapeake determined that the termination of the indemnity resulted in WISCO receiving a deemed distribution under section 752. Chesapeake also reported the $196 million tax cost payment it received from GP as ordinary income on its consolidated Federal tax return for 2001. Respondent issued Chesapeake the deficiency notice for 1999. In the deficiency notice, res

Trusts sold to AIG falls short of a fixed 'liability'cfor` section 752 and other federal income tax purposes" .

ssments . . . . . . . . . . . . . . . 37 III . Burden of Proof . . . . . . . . . . . . . . . . I. . . . . . . . . . . . . . . . . . . . . 39 IV . Economic Substance of the MLD Transaction . . . . .. . . . . . 40 A . Definition of a "Liability"'Under Section 752 . . 43 Section 1 .752-6, Income Tax' Regs . . . . . . . . . . . . . . . 47 . C. Economic Substance Doctrine'. . . . . . . . . . . . . . . . . . . . 50 1 . Subjective Prong . . . . 55 a . The Hamel Companies' Lack of a Current or Foreseeab

(Jenkens),,which advised them that their outside bases in LVI had been increased by the contribution of the short sale proceeds but had not been reduced by th e contribution of the short position, which was purportedly not a liability within the meaning of section 752 .

.91, that LKF was to pay Deutsche Bank under the terms of the long option . The parties did not reduce the basis in LKF to reflect the obligations under the short option, taking a position that those obligations were not liabilities for purposes of section 752 . The amended agreement also provided that CF Advisors woul d provide services as an investment adviser and foreign currency and foreign currency derivatives specialist . The amended agreement provided for quarterly compensation of CF Advi

nt, the partners claimed artificially inflated outside bases in their Highwood interests by using the long options to increase their outside bases and treating the short options as contingent obligations that did not reduce their outside bases under section 752 . Within a period of less than 2 months, the options expired unexercised, Highwood redistributed the Heilig-Meyers and Modis stock, and the partners shifted the artificially inflated outside bases to the stock . The partners then sold the

Under the position advanced by the promoters of this arrangement, the taxpayer claims that the basis in the taxpayer's partnership interest is increased by the cost of the purchased call options but is not reduced under § 752 as a result of the partnership's assumption of the taxpayer's obligation with respect to the written call options .

Under the position advanced by the promoters of this arrangement, the taxpayer claims that the basis in the taxpayer’s partnership interest is increased by the cost of the purchased call options but is not reduced under § 752 as a result of the partnership’s assumption of the taxpayer’s obligation with respect to the written call options.

t, the partners claimed artificially inflated outside bases in their Highwood interests by using the long options to increase their outside bases and treating the short options as contingent obligations that did not reduce their outside bases under section 752. Within a period of less than 2 months, the options expired unexercised, Highwood redistributed the Heilig-Meyers and Modis stock, and the partners shifted the artificially inflated outside bases to the stock. The partners then sold the st

However, Kligfeld presumably reasoned that the attached obligation to close out the short sale, an obligation that he also contributed, was a contingent liability and therefore shouldn’t reduce his outside basis as contributing a fixed liability would.10 As a result, 10 Section 752 states that outside basis is decreased by the amount of any personal liability assumed by the partnership.

Neither petitioner nor DIP treated the short sale obligation assumed by DIP as a liability under section 752, and petitioner did not compute his basis in his interest in DIP by taking that obligation into account .

ents stock to Stone Canyon, on behalf of itself and on behalf of Investors . In calculating the basis in the interests of JCB and Investors, the Bedrosians did not treat the options purportedly sold by JCB as a liability subject to the provisions of section 752 . 3 In December 1999, JCB purported to transfer its interest in Stone Canyon to Investors . Investors acquired the Texas Instruments stock previously contributed by JCB . Investors claimed a basis in the Texas Instruments stock based on t

Neither petitioner nor DIP treated the short sale obligation assumed by dip as a liability under section 752, and petitioner did not compute his basis in his interest in DIP by taking that obligation into account.

Section 752 states that outside basis is decreased by the amount of any personal liability assumed by the partnership. At the time of this transaction, it didn’t specifically include contingent liabilities, and so Kligfeld probably reasoned that the obligation shouldn’t be treated as a liability for purposes of basis calculation. Section 1.752-6(a)