IRS memorandum 200029046: Residence ruling request withdrawn after ownership objection

Plain-English summary

A couple proposed putting their home into a limited partnership and asked whether they would still satisfy section 121's two-year ownership requirement for excluding gain on a home sale. In a memorandum to the district director, the IRS said section 121(a) would not apply to the proposed arrangement because the partnership, rather than the taxpayers, would own the residence. It also declined to rule on their requested mortgage-interest and property-tax deductions. After hearing the IRS's position, the taxpayers withdrew the private letter ruling request. This document reports that withdrawal; it is not a ruling issued to the taxpayers.

Ruling snapshot

• Question: Would partnership ownership count as the couple's ownership of their principal residence under section 121?
• Outcome: Request withdrawn after the IRS stated its position; no taxpayer ruling issued.
• Key authorities: IRC §§ 121(a), 163(h), and 164(a)(1); Rev. Procs. 2000-1 and 2000-3.

Full text (IRS public release)

                         DEPARTMENT OF THE TREASURY
                             I N T E R N AL R E V E N U E S E R V I C E
                                  WASHINGTON, D.C. 20224



                                   4-24-2000
Number: 200029046
Release Date: 7/21/2000                                                   PLR-103278-00
UIL: 121.01-02                                                            CC:DOM:IT&A:17



MEMORANDUM FOR DISTRICT DIRECTOR,
               Attn: Chief, Examination Division

FROM:                  David B. Auclair /s/
                       Senior Technician Reviewer, Branch 1
                       (Income Tax & Accounting)

SUBJECT:               Letter Ruling Request Withdrawn

Pursuant to section 8.07(2)(b) of Revenue Procedure 2000-1, 2000-1 I.R.B. 4, at
83-4, we are writing to inform you that a taxpayer located within your district has
withdrawn a request for a private letter ruling.

The taxpayer,                                           , and the taxpayer’s spouse
proposed forming a limited partnership for purposes of holding their residence. The
owners of the partnership would be the taxpayer and the taxpayer’s spouse and a
newly formed limited liability company (LLC). The taxpayer and the taxpayer’s
spouse would each own a 49 percent interest, as limited partners of the
partnership. The LLC would own a 2 percent interest, as the general partner of the
partnership. The LLC would be owned by the taxpayer and the taxpayer’s spouse,
each with a 49 percent interest, and their child, with a 2 percent interest. The
taxpayer planned to hold the residence in the partnership for at least 2 years prior
to any sale of the property.

The taxpayer requested a ruling regarding whether the taxpayer and the taxpayer’s
spouse will be considered the owner of the residence for purposes of satisfying the
2-year ownership requirement of section 121(a) of the Internal Revenue Code for
the period that the residence is held by the partnership.

Section 121(a) of the Code provides that a taxpayer’s gross income will not include
gain from the sale or exchange of property if, during the 5-year period ending on
the date of the sale or exchange, such property has been owned and used by the
taxpayer as the taxpayer’s principal residence for periods aggregating two years or
more.

                                          2
PLR-103278-00

We concluded that section 121(a) of the Code is not applicable to the situation
described in the ruling request because the residence would be owned by the
partnership, not the taxpayer.

In addition, the taxpayer requested a ruling that (1) amounts paid by the taxpayer
for mortgage interest during the period of time the residence was owned by the
partnership would be deductible to the taxpayer under section 163(h), and (2) that
amounts paid by the taxpayer for property taxes during the period of time the
residence was owned by the partnership would be deductible to the taxpayer under
section 164(a)(1). In accordance with Rev. Proc. 2000-3, section 4.01(3), 2000-1
I.R.B. 103, at 109, we decided not to rule on these issues.

Upon informing the taxpayer of our position, the taxpayer withdrew the letter ruling
request.

If you need further information, please contact
           , at (202) 622-4910.