Proposed rules would change partners' treatment of unrealized receivables and inventory items
 

Proposed rules would change partners' treatment of unrealized receivables and inventory items

On Friday, the IRS issued proposed regulations under Sec. 751 that would amend the rules governing how a partner measures its interest in a partnership’s unrealized receivables and inventory items and the tax consequences of a distribution to a partner reducing that interest (REG-151416-06).

Sec. 751 was enacted to prevent taxpayers from using a partnership to convert what should be ordinary income into capital gain. Sec. 751(a) provides that the amount of any money, or the fair market value (FMV) of any property, a transferor partner receives in exchange for all or part of that partner’s interest in the partnership’s unrealized receivables and inventory items is deemed to be an amount realized from the sale or exchange of property other than a capital asset. Read more on the Journal of Accountancy.