Category: Sales & Exchanges; Partnerships Copyright 1998, The Tax Resource Group. All rights reserved. Telephone 800-578-3498. Internet: www.taxresourcegroup.com Facts Issues 2. Is installment reporting available? Answers 2. Installment reporting is not available.
In order for Section 1239 to apply, the taxpayers in this case, the husband and wife, must own either directly or through attribution more than 50% of the capital and profits interests in the partnership owned by the children. It is clear that if the entity in question were a corporation instead of a partnership, Section 267(c) would operate to make the parents the constructive owners of the stock held by the children, and Section 1239 would apply to the transaction. There is no clean statutory path to the same result for a partnership. Notice that Section 267(c), the sole source of constructive ownership rules for purposes of Section 1239, addresses only constructive ownership of stock. The question becomes whether or not the ownership of a partnership interest by one family member is attributed to other family members for purposes of Section 1239. Can the lack of attribution rules for noncorporate forms of ownership mean that there is no attribution except in the case of stock? I think the answer must clearly be no. Notice the statutory language of Section 1239(c)(1)(B): ...a person and a partnership more than 50% of which is owned directly or indirectly by that person. [Emphasis added.] It seems to me that the use of the phrase directly or indirectly is a clear indication that constructive ownership is to be taken into account. Notice that Section 1239(c)(2) says for purposes of this section [in other words not just the provisions dealing with corporate ownership, but the whole of Section 1239] rules similar to the rules of Section 267(c) should be used. It seems clear to me that the similar to language of Section 1239(c)(2) in conjunction with the clearly indicated intent in Section 1239(c)(1)(B) that constructively owned partnership interests should be counted for purposes of Section 1239 means that ownership of a partnership interest should be attributed to the members of the partner's family for purposes of Section 1239. Based on the foregoing analysis, it is my view that Section 1239 applies to the above-described transaction and would thus operate to recharacterize any gain on sale of the depreciable real estate as ordinary rather than capital gain. Having resolved the first issue, the second issue falls into place rather neatly. Section 453(g) denies installment sale treatment of depreciable property between related parties as defined in Section 1239(b). Since the denial of installment treatment under Section 453(g) is cut from the same statutory cloth as Section 1239, our conclusion for Section 1239 purposes also disposes of the installment sale matter. Since Section 1239 applies to the transaction, installment reporting should not be available. |
