Ezel / IRS Rulings / 200928036

CCA 200928036: Redemption before sale lets a permissible basis increase affect gain

Number
200928036
Outcome
Advice
Document type
Chief Counsel Advice
IRS subject
Payment to a Retiring Partner or a Deceased Partner's Successor in Interest
Topics
Partnerships
Code sections
§ 736
Ruling dated
September 2, 2008
Publicly released
July 10, 2009
Source
View Official PDF

Apply this to your situation

This page covers legal advice the IRS Office of Chief Counsel wrote for IRS staff, issued in 2009, which can't be cited as precedent. Ask about your situation and see what the current Code and IRS guidance say, with citations.

Currency note: this determination was released in 2009
Statutory amendments, regulation changes, court decisions, or later IRS guidance may have changed the analysis since then. Treat this page as historical context, not current tax advice. Verify current law before relying on any specific rule, threshold, or position mentioned here.
Not precedent. Under 26 U.S.C. § 6110(k)(3), this written determination may not be used or cited as precedent. It is advice from the IRS Office of Chief Counsel to IRS personnel on the facts they presented, and identifying details were redacted by the IRS before release. The official IRS release (linked on this page as a PDF) is the authoritative source.
About this page: The plain-English summary and ruling snapshot below were written by Ezel based on the official IRS release. The full text is the IRS's own document.
View official IRS release (PDF)

Plain-English summary

Chief Counsel advised that a redemption must occur before a later sale for any permissible basis increase from the redemption to affect the gain recognized on the sale. Counsel also stated that an S corporation would recognize the section 736(b) payments, but only when those payments were actually made. The email asked for clarification about a final question that assumed the partnership terminated in the first year because the described facts did not explain how that termination would occur.

Ruling snapshot

  • Question: How do the timing of a redemption and section 736(b) payments affect basis and recognition?
  • Outcome: Advice given on transaction ordering and payment recognition, with more facts requested about termination
  • Key authorities: IRC § 736(b)

Full text (IRS public release)

ID: CCA-921335-08 Number: 200928036

Release Date: 7/10/2009

Office: ----------------

UILC: 736.00-00

From: ----------------------

Sent: Tuesday, September 02, 2008 1:35 PM

To: -----------------

Subject: RE: One more question

Hi ----------

I spoke with ---------------------about your questions, and he agreed with the below conclusions.

First, with respect to the ordering of the redemption/basis step-up and subsequent sale, so long as the redemption occurs before the sale, any permissible basis step-up will be in place and will impact the amount of gain recognized on the sale.

For the 736(b) payments, it would be the S Corp who would recognize the payments. However, as you stated in your e-mail, the payments aren't recognized by the S Corp until actually made under 736(b).

I'm a little confused on your last question, i.e. where the partnership terminates in Year 1. How would the partnership be terminating?

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