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Regulations on allocations relating to contributed property affect securities partnerships.

On Dec. 21, 1993, proposed and temporary regulations were issued under Sec. 704(c), providing guidance on two issues not addressed in simultaneously issued final regulations that covered other aspects of the partnership-contributed property allocation The apportionment or designation of an item for a specific purpose or to a particular place.

In the law of trusts, the allocation of cash dividends earned by a stock that makes up the principal of a trust for a beneficiary usually means that the dividends will be treated as
 rules. These two topics were the introduction of a new method of performing Sec. 704(c) allocations, called the remedial REMEDIAL. That which affords a remedy; as, a remedial statute, or one which is made to supply some defects or abridge some superfluities of the common law. 1 131. Com. 86. The term remedial statute is also applied to those acts which give a new remedy. Esp. Pen. Act. 1.  allocation method, and the creation of an exception to the normal property by property allocation rules that could be applied by certain securities partnerships.

Modification to proposed regulations made by final regulations

Remedial allocation mothod: Regs. Sec. 1.704-3(d) clarifies several ambiguities that existed in the proposed regulations with respect to the use of the remedial allocation method. First, a partnership must use a recovery method and period available for newly purchased property of the type contributed in computing computing - computer  "book" depreciation on the "built-in built-in - (Or "primitive") A built-in function or operator is one provided by the lowest level of a language implementation. This usually means it is not possible (or efficient) to express it in the language itself.  gain" portion of the book basis of affected property (i.e., the amount by which the property's fair market value exceeds its adjusted tax basis or previous book basis on the date of contribution or revaluation Revaluation

A calculated adjustment to a country's official exchange rate relative to a chosen baseline. The baseline can be anything from wage rates to the price of gold to a foreign currency. In a fixed exchange rate regime, only a decision by a country's government (i.e.
). The final regulations also clarify that remedial allocations do not affect the adjusted tax basis in partnership property. This can be particularly important in determining the amount of Sec. 704(c) minimum gain that exists with respect to contributed property for purposes of allocating nonrecourse debt A nonrecourse debt or non-recourse debt or nonrecourse loan is a secured loan (debt) that is secured by a pledge of collateral, typically real property, but for which the borrower is not personally liable.  under Regs. Sec. 1.752-3(a)(2).

Securities aggregation rules: Regs. Sec. 1.704-3(e)(3) considerably expands the scope of the special rule that allows "securities partnerships" to perform reverse Sec. 704(c) allocations on an aggregate basis by adopting a broad definition of the term securities partnership." Under Regs. Sec. 1.704-3(e)(3)(iii), partnerships that are either registered as management companies under the Investment Company Act of 1940 or that hold qualifying assets and reasonably expect, as of the end of the first tax year in which they adopt an aggregate approach, to make revaluations of their qualified assets at least annually and make all allocations in proportion to the partners' relative book capital accounts (except for reasonable special allocations to a partner providing management or investment advisory services advisory services

advisory services provided to the public, in their capacity as owners and managers of animals, are an important part of veterinary science. They may be provided by government bureaux, by commercial companies who deal in pharmaceuticals or animals or animal
), qualify to use the aggregation approach. Thus, even if a partnership is closely held A phrase used to describe the ownership, management, and operation of a corporation by a small group of people.

In a closely held corporation, the same people often act as shareholders, directors, and officers, and no outside investors exist.
 (i.e., has five or fewer investors holding 50% or more of its capital interests), it can perform its reverse See. 704(c) allocations on an aggregate basis. The final regulations also permit "built-in gains" associated with revalued property of such partnerships to be netted with "built-in losses" associated with such properties in performing reverse Sec. 704(c) allocations, rather than requiring built-in gain and built-in loss properties to be separately aggregated.

Effective date

Regs. Sec. 1.704-3 applies to property contributed to a partnership and to revaluations of partnership property after Dec. 20, 1993. However, taxpayers can rely on the temporary and proposed regulations with respect to property contributed to a partnership and to revaluations after Dec. 20, 1993 and before Dec. 27, 1994.

From Glenn E. Dance, CPA (Computer Press Association, Landing, NJ) An earlier membership organization founded in 1983 that promoted excellence in computer journalism. Its annual awards honored outstanding examples in print, broadcast and electronic media. The CPA disbanded in 2000. , J.D., Washington, D. C.
COPYRIGHT 1995 American Institute of CPA's
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Author:Dance, Glenn E.
Publication:The Tax Adviser
Date:Nov 1, 1995
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