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Partial sale of a partnership interest: flexibility in controlling gain?

Article Excerpt
A sale of a partial partnership interest and an allocation of adjusted basis between the interest sold and the interest retained is rather complicated, particularly in situations involving the discharge of partnership liabilities. The IRS issued Rev. Rul. 84-53 to clarify this issue, based, in part, on the Sec. 752 regulations then in effect. However, the subsequent issuance of final Sec. 752 regulations may result in substantially different allocations of nonrecourse debt (and basis) than occurred under the previous Sec. 752 regulations and Sec. 1001 rules used in formulating Rev. Rul. 84-53. Therefore, it is difficult to predict how Rev. Rul. 84-53 applies in certain circumstances.

General Rule of Rev. Rul. 84-53

Under Rev. Rul. 84-53, a partner has a single basis in his partnership interest. When calculating basis if he sells only a portion of his partnership interest, the partner first excludes from the adjusted basis of his entire interest an amount equal to his share of all partnership liabilities. Next, he allocates part of the remaining adjusted basis (the residual basis) to the portion of the interest sold based on the ratio of the fair market value (FMV) of the portion sold to the entire interest's FMV. Finally, he adds...

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