to the extent that income arising from such rights to payment was not previously includible in income under the method of accounting employed by the partnership. Such rights must have arisen under contracts or agreements in existence at the time of sale or distribution, although the partnership may not be able to enforce payment until a later time. For example, the term includes trade accounts receivable of a cash method taxpayer, and rights to payment for work or goods begun but incomplete at the time of the sale or distribution.
Assets | ||
Adjusted basis | Fair market value | |
Cash | $3,000 | $3,000 |
Loans Receivable | 10,000 | 10,000 |
Capital Assets | 7,000 | 5,000 |
Unrealized Receivables | 0 | 14,000 |
Total | 20,000 | 32,000 |
Liabilities and Capital | ||
Adjusted per books | Fair market value | |
Liabilities | $2,000 | $2,000 |
Capital: | ||
A | 9,000 | 15,000 |
B | 9,000 | 15,000 |
Total | 20,000 | 32,000 |
Assets
Adjusted basis per books | Market value | |
Cash | $15,000 | $15,000 |
Accounts receivable | 9,000 | 9,000 |
Inventory | 21,000 | 30,000 |
Depreciable property | 42,000 | 48,000 |
Land | 9,000 | 9,000 |
Total | 96,000 | 11,000 |
Liabilities and Capital
Per books | Value | |
Current liabilities | $15,000 | $15,000 |
Mortgage payable | 21,000 | 21,000 |
Capital: | ||
A | 20,000 | 25,000 |
B | 20,000 | 25,000 |
C | 20,000 | 25,000 |
Total | 96,000 | 111,000 |
The distribution received by C consists of $10,000 cash and depreciable property with a fair market value of $15,000 and an adjusted basis to the partnership of $15,000.
I | II | |||
Sec.754, Election in effect | Sec.754, Election not in effect | |||
Basis | Fair market value | Basis | Fair market value | |
Cash | $5,000 | $5,000 | $5,000 | $5,000 |
Accounts receivable | 9,000 | 9,000 | 9,000 | 9,000 |
Inventory | 24,000 | 30,000 | 24,000 | 30,000 |
Depreciable property | 29,000 | 33,000 | 27,000 | 33,000 |
Land | 9,000 | 9,000 | 9,000 | 9,000 |
76,000 | 86,000 | 74,000 | 86,000 | |
Current liabilities | 15,000 | 15,000 | 15,000 | 15,000 |
Mortgage | 21,000 | 21,000 | 21,000 | 21,000 |
Capital: | ||||
20,000 | 25,000 | 20,000 | 25,000 | |
20,000 | 25,000 | 20,000 | 25,000 | |
76,000 | 86,000 | 76,000 | 86,000 |
Item | C's interest Fair Market Value | C received | C relinquished | ||
One-third before | One-fifth after | Distribution of share | In excess of share | ||
Cash | $5,000 | $2,000 | $3,000 | $2,000 | |
Liabilities assumed | (12,000) | (7,200) | 4,800 | ||
Inventory items: | |||||
Accounts receivable | 3,000 | 300 | 2,700 | 4,800 | |
Inventory | 10,000 | 6,000 | $4,000 | ||
Depreciable property | 16,000 | 9,600 | 6,400 | ||
Land | 3,000 | 1,800 | 1,200 | ||
Total | 25,000 | 12,500 | 5,700 | 11,600 | 11,600 |
Although C relinquished his interest in $4,000 of inventory and received $4,800 of accounts receivable, both items constitute section 751 property and C has received only $800 of accounts receivable for $800 worth of depreciable property or for an $800 undivided interest in land. In the absence of an agreement identifying the properties exchanged, it is presumed C received $800 for proportionate shares of his interests in both depreciable property and land. To the extent that inventory was exchanged for accounts receivable, or to the extent cash was distributed for the release of C's interest in the balance of the depreciable property and land, the transaction does not fall within section 751(b) and is a current distribution under section 732(a). Thus, the remaining $6,700 of accounts receivable are received in a current distribution.
If accounts receivable received for depreciable property | If accounts receivable received for land | If there is no agreement | |
Original basis for C's interest | $32,000 | $32,000 | $32,000 |
Less basis of property distributed prior to sec. 751 (b) sale or exchange | -700 | -800 | -716 |
31,300 | 31,200 | 31,284 | |
Less money received in distribution | -9,800 | -9,800 | -9,800 |
21,500 | 21,400 | 21,484 | |
Less basis of property received in a current distribution under sec. 732 | -6,700 | -6,700 | -6,700 |
Resulting basis for C's interest | 14,800 | 14,700 | 14,784 |
C's basis for the $1,500 worth of accounts receivable which he received in the distribution will be $7,500, composed of $800 for the portion purchased in the section 751(b) exchange, plus $6,700, the basis carried over under section 732(a) for the portion received in the current distribution.
Assets
Adjusted basis per books | Market value | |
Cash | $3,000 | $3,000 |
Machine (section 1245 property) | 9,000 | 15,000 |
Land | 18,000 | 27,000 |
Total | 30,000 | 45,000 |
Liabilities and Capital
Per books | Value | |
Liabilities | $0 | $0 |
Capital: | ||
A | 10,000 | 15,000 |
B | 10,000 | 15,000 |
C | 10,000 | 15,000 |
Total | 30,000 | 45,000 |
26 C.F.R. §1.751-1