Title

Super-Recognition and the Return-to-Sender Exception: The Federal Income Tax Problems of Liquidating the Family Limited Partnership

Publication Title

Capital University Law Review

Document Type

Article

Publication Date

1-1-2006

Abstract

This article discusses three income tax rules that can cause partners to recognize gain for federal income tax purposes upon the liquidation of a family limited partnership: §§ 704(c)(1)(B), 731(c), and 737. From a policy perspective, the application of these rules to traditional family limited partnerships creates two problems. These problems are illustrated through the use of a hypothetical case study.

The first problem (which arises where the partnership holds loss property) is that of super-recognition, where a partner recognizes more gain from the liquidation than he or she would recognize upon a sale of his or her partnership interest. The article argues that while super-recognition is appropriate in the context of a traditional partnership, it is not appropriate in the context of the typical family limited partnership formed for estate planning purposes.

The second problem relates to the return-to-sender exception, which permits a partnership to distribute property back to the contributing partner without forcing the contributing partner to recognize gain under these rules. Regulations expressly extend the return-to-sender exception to a contributing partner's assignee for purposes of §704(c)(1)(B), but the regulations are ominously quiet as to whether assignees of a contributing partner are spared from the other two rules. The article argues that the return-to-sender exception should be extended to the assignees of a contributing partner for all purposes.

Comments

External Links
Westlaw
Lexis Advance
HeinOnline
SSRN

Recommended Citation

Samuel A. Donaldson, Super-Recognition and the Return-to-Sender Exception: The Federal Income Tax Problems of Liquidating the Family Limited Partnership, 35 Cap. U. L. Rev. 15 (2006).

Volume

35

Issue

1

First Page

15

Last Page

60

This document is currently not available here.

Share

COinS