The excess of the partner's share of net gain that would be recognized if all securities of the type distributed held by the partnership immediately before the transaction were sold at fair market value over
2. The partner's share of gain that would be taken into account if the securities held by the partnership immediately after the transaction were sold.
While the term "marketable securities" includes interests in actively traded precious metals and other financial instruments that are set forth in the applicable IRC code and regulations, there are some exceptions to this provision, though, and it does not apply in three specific situations as noted below:
1. Contributed by partner. If the security itself was contributed to the partnership by the distributee-partner, the provision generally does not apply.
2. Not a security when acquired. The property distributed to the partner was not a marketable security when the partnership acquired it -- to the extent provided in the regulations.
3. Investment partnership. The partnership is an investment partnership [defined in section 731(c)(3)(C)(i)] and the partner is an eligible partner [defined in section 731(c)(3)(C)(iii)]. Look-through rules are provided for tiered partnerships.
By and large, the same techniques that are used with inventory are applied to marketable securities for the purposes of determining partnership distributions, with Section 751(b) being relevant in some cases as follows.
1. IRC section 704(c)(1)(B) may simultaneously apply if another partner contributed the marketable securities.
2. The code and the legislative history are silent on the provision's application to a termination under IRC section 708(b)(1)(B).
3. The disguised sale rules of IRC section 707(a)(2)(B) appear to take precedence.
4. To the extent marketable securities are treated as money, the same amount also is money for purposes of applying Internal Revenue Code section 737. This reduces the amount of gain recognized. In addition, the portion of the marketable securities not treated as money is treated as property for section 737 purposes.
5. IRC section 751(b) (disproportionate distributions) takes precedence.
The same regulatory guidance that covers disproportionate distributions in partnerships is applicable to limited liability companies as well. For instance, according to Magina, Plummer and Streer, disproportionate distributions in limited liability companies (LLC) take place when a distribution is made to a member that represents more or less than the member's share of ordinary income-producing property (as defined in IRC Section 751(a) as unrealized receivables or substantially appreciated inventory). These authorities add that, "When either a current or liquidating disproportionate distribution is made, IRC Section 751 applies to prevent the shifting of ordinary income among the LLC's members."
With respect to LLCs and as with partnerships, any excess of the unrealized receivables and substantially appreciated inventory distributed to members of the LLC that are above their respective proportionate share of these items is regarded to have been purchased from the LLC in return for the members' respective allocation of any cash and capital assets that were not actually received. Conversely, in those cases where LLC members receive an excess of cash or capital assets, such excess is considered to have been purchased from the LLC in return for their respective portion of ordinary income property that was not received.
Consequently, both the LLC members who receive the distribution as well as the LLC itself stand to experience gain or loss, but the gain or loss is recognized by the LLC flows-through and affects all members of the LLC even if they do not receive any distribution of property.
Beyond the foregoing considerations with respect to inventory, Weitzner and Sayre emphasize that the rules regarding distributions of marketable securities from partnerships also require careful application and administration. According to these authorities, "To prevent partners from exchanging their share of a partnership's appreciated assets for a disproportionate share of the partnership's marketable securities and thus deferring gain, the Uruguay Round Agreements Act -- related to the General Agreement on Tariffs and Trade -- added section 731(c) to the Internal Revenue Code."
These provisions are generally applicable for distributions from partnerships that were completed after December 8, 1994.
Identifying a Disproportionate Distribution
In order to determine if the distribution of partnership property was a pro rata or disproportionate share, the fair market value of the all partnership assets is taken into account instead of the bases in these corresponding assets. According to the IRS, "In order to fall within the regular pro-rata distribution rules described in the above Sections on current and liquidating distributions, each partner's share of IRC Section 751 assets and other property (including cash) must remain unchanged after the distribution."
Internal Revenue Code Section 751(b) provisions become applicable in those cases where partners' respective share of IRC Section 751 and non-IRC Section 751 assets is altered; for example, in those cases where partners are provided with debt relief from the partnership but nothing beyond this relief, they are considered to have received a cash distribution. In those cases where there are IRC Section 751 assets involved (including the recapture of depreciation), there are disproportionate distributions...
Capital Assets Classification of Gains or Losses on Futures Contracts Facts: Taxpayer: In order to properly account for the loss that she took on her futures, Haig Simmons must understand the difference between a capital loss (or gain) and an ordinary loss (or gain). In her situation, the coal futures were a something that she entered into as a hedge in order to protect herself against fluctuations in the price of coal.
Some Chinese researchers assert that Chinese flutes may have evolved from of Indian provenance. In fact, the kind of side-blown, or transverse, flutes musicians play in Southeast Asia have also been discovered in Africa, India, Saudi Arabia, and Central Asia, as well as throughout the Europe of the Roman Empire. This suggests that rather than originating in China or even in India, the transverse flute might have been adopted through the
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