Tax and accounting aspects of liquidating a partner's interest.EXECUTIVE SUMMARY * If capital is not a material income-producing factor for a partnership, payments in liquidation The collection of assets belonging to a debtor to be applied to the discharge of his or her outstanding debts. A type of proceeding pursuant to federal Bankruptcy of a general partner's interest do not include amounts paid for goodwill (unless the partnership agreement provides for goodwill payments) and unrealized receivables Receivables An asset designation applicable to all debts, unsettled transactions or other monetary obligations owed to a company by its debtors or customers. Receivables are recorded by a company's accountants and reported on the balance sheet, and they and include all debts owed . * The mixing of the entity and aggregate approaches for tax purposes results in complex rules and records. * When a distributee An heir; a person entitled to share in the distribution of an estate. This term is used to denote one of the persons who is entitled, under the statute of distributions, to the personal estate of one who is dead intestate. partner receives multiple properties in liquidation of his interest, the issue of 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 must be addressed. The tax analysis of the liquidation of a general partner's interest in a partnership involves use of both the aggregate and entity theories, making for great complexity in record-keeping. Through the use of extensive examples, this article explains the tax and financial accounting treatment of a complete liquidation of such an interest under proposed regulations. From an accounting viewpoint, a partnership is a separate business entity; an "entity" approach is employed to maintain financial records. From a tax viewpoint, a partnership is treated as an entity for some purposes and as an "aggregate" of its partners for others. The mixing of two approaches for tax purposes gives rise to complex rules and tax records that do not plague plague, any contagious, malignant, epidemic disease, in particular the bubonic plague and the black plague (or Black Death), both forms of the same infection. traditional financial statements. This article analyzes certain tax complexities that arise when a partnership liquidates a partner's interest. The effect of recent proposed regulations under Secs. 732, 734, 743 and 755 on such liquidating distributions is examined through eight examples, one of which also presents possible financial accounting treatments of the liquidating distribution, both at the partnership and partner levels. Liquidation of Partner's Interest Example 1: W, X, Y and Z are equal partners in WXYZ WXYZ could refer to three broadcast stations in the Detroit, Michigan area of the United States.
WXYZ Partnership balance sheet
Basis FMV
Cash $16,000 $16,000
Accounts receivable 0 32,000
Inventory 32,000 64,000
Land 16,000 32,000
Machine 16,000 32,000
$80,000 $176,000
Capital-W $20,000 $44,000
Capital-X 20,000 44,000
Capital-Y 20,000 44,000
Capital-Z 20,000 44,000
$80,000 $176,000
Tax Analysis Because capital is a material income-producing factor for WXYZ, W receives $44,000 FMV of inventory in exchange for his $44,000 interest in partnership property. Thus, W receives a Sec. 736(b) payment of $44,000; the remaining $4,000 of inventory received is a Sec. 736(a) payment. Sec. 736(a) payment: Because the $4,000 of inventory received by W as a Sec. 736(a) payment is determined without regard to partnership income, the payment is a guaranteed payment under Sec. 736(a)(2). W recognizes $4,000 of ordinary income and takes a $4,000 basis in this part of the inventory. XYZ XYZ interj. Informal Used to indicate to someone that the zipper of his or her pants is open. [ex(amine) y(our) z(ipper).] has a Sec. 162 deduction deduction, in logic, form of inference such that the conclusion must be true if the premises are true. For example, if we know that all men have two legs and that John is a man, it is then logical to deduce that John has two legs. in the same amount under Regs. Sec. 1.736-1(a)(4). In addition, because XYZ met its $4,000 Sec. 736(a)(2) obligation to W with appreciated property with a $4,000 FMV and a $2,000 adjusted basis, it recognizes $2,000 ($4,000-$2,000) of income on the transfer. Sec. 73600 payment: The $44,000 inventory distribution is subject to Sec. 751(b) because W has received more than his share of "hot" assets(2) and has relinquished re·lin·quish tr.v. re·lin·quished, re·lin·quish·ing, re·lin·quish·es 1. To retire from; give up or abandon. 2. To put aside or desist from (something practiced, professed, or intended). 3. more than his share of "non-hot" assets. The hot assets are the $32,000 accounts receivable accounts receivable n. the amounts of money due or owed to a business or professional by customers or clients. Generally, accounts receivable refers to the total amount due and is considered in calculating the value of a business or the business' problems in paying , the $16,000 Sec. 1245 recapture recapture n. in income tax, the requirement that the taxpayer pay the amount of tax savings from past years due to accelerated depreciation or deferred capital gains upon sale of property. (See: income tax) RECAPTURE, war. potential from the machine(3) and the $64,000 FMV of inventory.(4) The effect of Sec. 751(b) is analyzed an·a·lyze tr.v. an·a·lyzed, an·a·lyz·ing, an·a·lyz·es 1. To examine methodically by separating into parts and studying their interrelations. 2. Chemistry To make a chemical analysis of. 3. below.(5) Several observations are warranted. First, Sec. 751(b) is concerned with W's interest in the FMV of partnership property. Second, the total inventory W receives (as shown below) is $44,000 ($16,000 + $28,000), not $48,000, because the former amount is the Sec. 736(b) payment. Third, the $28,000 "excess inventory received" is reduced to $16,000 by the "relinquished" recapture potential of $4,000 and the $8,000 "relinquished" accounts receivable; according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. Regs. Sec. 1.751-1(b)(1)(i), Sec. 751(b) applies only to the extent of the exchange of hot assets for non-hot assets (and vice versa VICE VERSA. On the contrary; on opposite sides. ). The Sec. 751 (b) deemed distribution and exchange are as follows (the Parentheses See parenthesis. parentheses - See left parenthesis, right parenthesis. indicate an item's basis to the partnership and FMV):
Distribution Partnership
Sec. 751(b) Cash $4,000
Land ($4,000,$8,000) Inventory
($8,000, $16,000)
Machine ($4,000, $4,000)
Non-Sec.
751(b) Inventory ($14,000, $28,000)
After the Sec. 751(b) deemed distribution, W takes a $4,000 basis in the land and a $4,000 basis in the machine, under Sec. 732(a).(6) W's outside basis is reduced to $8,000 ($20,000-$4,000 cash-$4,000 land-$4,000 machine). W recognizes a $4,000 ($8,000 -- $4,000) capital gain on the deemed exchange of land with XYZ. Because XYZ has purchased for $8,000 land that had a $4,000 basis to WXYZ, the land has a $4,000 basis step-up step-up A scheduled increase in the exercise or conversion price at which a warrant, an option, or a convertible security may be used to acquire shares of common stock. .(7) XYZ has $8,000 of ordinary income ($16,000 -- $8,000) on its "sale" of inventory to 145 correlatively cor·rel·a·tive adj. 1. Related; corresponding. 2. Grammar Indicating a reciprocal or complementary relationship: a correlative conjunction. n. 1. , W takes a $16,000 basis in that part of the inventory. In the non-Sec. 751(b) distribution, W receives inventory worth $28,000 with a tax basis to the partnership of $14,000. Because W's outside basis after the Sec. 75 l(b) distribution is $8,000, he takes an $8,000 basis in the inventory distributed in the non-Sec. 75 l(b) distribution, under Sec. 732(b); this is a $6,000 step-down from the partnership's basis in the property.(8) W's tax consequences: W has inventory with a $48,000 FMV and an adjusted basis of $28,000 ($4,000 Sec. 736(a) guaranteed payment + $16,000 Sec. 751(b) "purchase" + $8,000 non-Sec. 751(b) distribution). W recognizes a $4,000 capital gain on the "sale" of land to XYZ and $4,000 of ordinary income on the Sec. 736(a)(2) guaranteed payment. XYZ's tax consequences: XYZ recognizes $8,000 of ordinary income on the "sale" of inventory to W. XYZ gets a $4,000 step-up in basis Step-Up In Basis The readjustment of the value of an appreciated asset for tax purposes upon inheritance. With a step-up in basis, the value of the asset is determined to be the higher market value of the asset at the time of inheritance, not the value at which the original party in land on its "purchase" from W. The $4,000 Sec. 736(a)(2) guaranteed payment is deductible That which may be taken away or subtracted. In taxation, an item that may be subtracted from gross income or adjusted gross income in determining taxable income (e.g., interest expenses, charitable contributions, certain taxes). by XYZ; the $2,000 gain on the payment of the Sec. 736(a)(2) obligation with appreciated property is includible in XYZ's income. After the transaction, XYZ's balance sheet is as follows:
XYZ Partnership balance sheet
Basis FMV
Cash $16,000 $16,000
Accounts
receivable 0 32,000
Inventory 8,000 16,000
Land 20,000 32,000
Machine 16,000 32,000
$60,000 $128,000
Capital-X $22,000(*) $42,667(**)
Capital-Y 22,000 42,667
Capital-Z 22,000 42,666
$66,000 $128,000
(*) $20,000 original amount + (($8,000 ordinary income on sale + $2,000 gain on guaranteed payment - $4,000 guaranteed payment)/3). (**) $128,000/3. This may also be derived de·rive v. de·rived, de·riv·ing, de·rives v.tr. 1. To obtain or receive from a source. 2. as follows: $44,000 original amount - ($4,000 bonus paid to W by XYZ to liquidate To pay and settle the amount of a debt; to convert assets to cash; to aggregate the assets of an insolvent enterprise and calculate its liabilities in order to settle with the debtors and the creditors and apportion the remaining assets, if any, among the stockholders or owners of the his interest/3). Financial Accounting Treatment To examine the financial accounting treatment of the liquidation, WXYZ's original balance sheet is expanded to include financial basis.
WXYZ Partnership balance sheet
Tax Financial
basis FMV basis
Cash $16,000 $16,000 $16,000
Accounts
receivable -0- 32,000 32,000
Inventory 32,000 64,000 32,000
Land 16,000 32,000 16,000
Machine 16,000 32,000 24,000
Total $80,000 $176,000 $120,000
Capital-W $20,000 44,000 30,000
Capital-X 20,000 44,000 30,000
Capital-Y 20,000 44,000 30,000
Capital-Z 20,000 44,000 30,000
Total $80,000 $176,000 $120,000
The liquidation of a partner's interest provides an opportunity to bring the financial balance sheet to current FMVs if the FMVs of all the assets and liabilities are known.(9) The WXYZ partnership agreement requires the 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. of assets for financial statement purposes on the liquidation of a partner's interest. The transaction is recorded on the partnership's books as follows:
Entry to book-up the assets and allocate
income to partners:
Inventory $32,000
Land 16,000
Machine 8,000
Capital-W $14,000
Capital-X 14,000
Capital-Y 14,000
Capital-Z 14,000
The balance in W's capital account after this entry (but before recording the liquidating distribution) is $44,000. The $4,000 difference between the FMV of the inventory distributed to W and W's capital account could be attributed to unrecorded goodwill; alternatively, the excess could represent a bonus paid to W to entice him to relinquish his partnership interest. Because it is assumed that the FMV of the recorded assets fairly represents total asset FMV, it can be assumed that the remaining partners are paying W a bonus to facilitate the liquidation. The entry to record the liquidation of W's interest in exchange for inventory is as follows:
Capital-W $44,000
Capital-X 1,333
Capital-Y 1,333
Capital-Z 1,334
Inventory $48,000
Several points warrant observation. First, the character of income (e.g., ordinary income, capital gain) is of no consequence for purposes of the financial entries. Second, X's, Y's and Z's post-distribution capital accounts for financial accounting purposes are the same as the FMV capital accounts in the XYZ balance sheet. Third, the financial accounting treatment is similar to the maintenance of capital account (substantial economic effect) rules.(10) Finally, the transactions would be accounted for on W's books, according to Accounting Principles Board The Accounting Principles Board (APB) is the former authoritative body of the American Institute of Certified Public Accountants (AICPA). It was created by the American Institute of Certified Public Accountants in 1959 and issued pronouncements on accounting principles until 1973, (APB APB See Accounting Principles Board (APB). ) Opinion No. 18(11) and AIN-APB18, #2,(12) as follows:
Entry to record W's distributive share of
partnership income due to the book-up:
Investment
in WXYZ $14,000
Investment
revenue $14,000
Entry to record the liquidation:
Inventory $48,000
Investment in
WXYZ
Partnership $44,000
Gain on
liquidation
of interest 4,000
Again, the $4,000 gain represents the bonus paid to W to entice him to relinquish his partnership interest.(13) Example 2: The facts are the same as in Example 1, except that WXYZ had made a Sec. 754 election. The analysis is the same as in Example 1, except that there is a positive $6,000 Sec. 734(b) adjustment to the partnership's ordinary income property. This is due to the non-Sec. 751(b) distribution of inventory (ordinary income property) with a partnership basis of $14,000, but an $8,000 basis in W's hands.(14) Ordinary income property, defined by Prop. Regs. Sec. 1.755-1(a) as other than capital assets capital assets n. equipment, property, and funds owned by a business. (See: capital, capital account) and Sec. 1231(b) property, includes the accounts receivable and inventory.(15) The $6,000 increase is allocated to accounts receivable and inventory first in proportion to their respective amounts of unrealized appreciation ($32,000 and $8,000), but only to the extent of each property's unrealized appreciation; any remaining increase is allocated to accounts receivable and inventory in proportion to their FMVs, according to Prop. Regs. Sec. 1.755-1(c)(2)(i). Thus, the accounts receivable basis becomes $4,800 ($0 + [$6,000 x ($32,000/$40,000)]); the inventory basis becomes $9,200 ($8,000 + [$6,000 x ($8,000/$40,000)]). After the liquidation, XYZ's balance sheet is as follows:
XYZ Partnership balance sheet
Basis FMV
Cash $16,000 $16,000
Accounts
receivable 4,800 32,000
Inventory 9,200 16,000
Land 20,000 32,000
Machine 16,000 32,000
$66,000 $128,000
Capital-X $22,000 42,667
Capital-Y 22,000 42,667
Capital-Z 22,000 42,666
$66,000 $128,000
The sum of the asset bases, $66,000, equals the sum of the partners' capital accounts (basis). A Sec. 734(b) adjustment is reflected in the common basis of partnership property; a Sec. 743(b) adjustment is made for the transferee partner only. Example 3: W, X, Y and Z are equal partners in WXYZ, a general partnership in which capital is not a material income-producing factor (e.g., a service partnership). W receives $48,000 cash in complete liquidation of his interest. W has an outside basis of $20,000 in his partnership interest; WXYZ's balance sheet is as follows:
WXYZ Partnership balance sheet
Basis FMV
Cash $48,000 $48,000
Accounts
receivable 0 64,000
Land 16,000 32,000
Machine 16,000 32,000
Goodwill 0 16,000
$80,000 $192,000
Basis FMV
Capital-W $20,000 $48,000
Capital-X 20,000 48,000
Capital-Y 20,000 48,000
Capital-Z 20,000 48,000
$80,000 $192,000
If the partnership sold the machine, $16,000 of Sec. 1245 ordinary income would be recognized. The partnership agreement makes no provision for payments for goodwill. Tax Analysis According to Sec. 736(b)(2) and (3), payments to W for his interest in goodwill and accounts receivable (an unrealized receivable)(16) are not Sec. 736(b) payments; thus, the Sec. 736(b) payment is $28,000 (1/4 x ($48,000 cash-4-$32,000 land + $32,000 machine)). The remaining $20,000 payment is a Sec. 736(a) payment. Sec. 756(a) payment: Because the $20,000 cash W received as a Sec. 736(a) payment is determined without regard to partnership income, it is a Sec. 736(a)(2) guaranteed payment. W recognizes $20,000 of ordinary income; XYZ takes an equal Sec. 162 deduction. Sec. 736(b) payment: Even though payments for the accounts receivable (and goodwill) are not subject to Sec. 751(b),(17) Sec. 751(b) still applies to the distribution, because W has relinquished his entire share of Sec. 1245 recapture potential. The table below indicates the operation of Sec. 751(b).
W's interest W received W
Item (FMV) W's share Excess relinquished
$4,000
Cash $12,000 $12,000 [$16,000]
Land 8,000 [$8,000]
Machine 4,000 [4,000]
Recapture
potential 4,000 4,000
[$16,000] [$16,000]
$28,000 $12,000 $4,000 $4,000
Three items warrant observation. First, accounts receivable and goodwill are not listed, because payments for them are not Sec. 736(b) payments. Second, although W'S interest in cash is $12,000 (1/4 x $48,000), he is deemed to receive only $28,000 (not $48,000), the amount paid under Sec. 736(b). Third, the Sec. 751(b) exchange is recapture potential ($4,000) for cash ($4,000).(18) The Sec. 751 (b) deemed distribution and exchange are as follows (the parentheses indicate an item's basis to the partnership and FMV):
Distribution Partnership
Sec. 751(b) Recapture
potential [equivalence] Cash $4,000
($0,$4,000)
Non-Sec.
751(b) Cash $24,000
On the Sec. 751(b) deemed distribution, W's basis in the recapture potential is zero; his outside basis remains $20,000. W recognizes $4,000 of ordinary income on the deemed sale of the recapture potential to the partnership; the partnership steps up the machine's basis by $4,000 (reducing the Sec. 1245 ordinary income potential to XYZ by $4,000). As to the non-Sec.751(b) distribution, W recognizes a $4,000 capital gain ($24,000 cash received -- $20,000 outside basis) under Sec. 731(a). If a Sec. 754 election were in effect, the partnership would have a $4,000 Sec. 734(b) adjustment to its capital gain property (land, machine and goodwill).(19) W's tax consequences: W recognizes $20,000 of ordinary income on the Sec. 736(a)(2) guaranteed payment and $4,000 of ordinary income on the deemed exchange to the partnership of $4,000 recapture potential. W also recognizes a $4,000 capital gain under Sec. 731(a)(1) due to the $24,000 non-Sec. 751(b) distribution in excess of his $20,000 outside basis in the partnership. XYZ's tax consequences: XYZ can deduct de·duct v. de·duct·ed, de·duct·ing, de·ducts v.tr. 1. To take away (a quantity) from another; subtract. 2. To derive by deduction; deduce. v.intr. the $20,000 Sec. 736(a)(2) payment and step up its basis in the machine by $4,000 on the "purchase" of $4,000 recapture potential. Thus, XYZ's adjusted basis in the machine is $20,000, with $12,000 of Sec. 1245 ordinary income potential. If XYZ has a Sec. 754 election in effect, it would have a positive $4,000 Sec. 734(b) adjustment to its capital gain property due to W's $4,000 capital gain under Sec. 731(a)(1). As explained below, the $4,000 Sec. 734(b) adjustment is allocated first to the land, machine and goodwill pro rata [Latin, Proportionately.] A phrase that describes a division made according to a certain rate, percentage, or share. In a Bankruptcy case, when the debtor is insolvent, creditors generally agree to accept a pro rata share of what is owed to them. according to the assets' unrealized appreciation (but only to the extent of such unrealized appreciation), then (if necessary) pro rata according to their FMVs. The land's unrealized appreciation is $16,000, the machine's is $12,000 ($32,000-$20,000 basis after the "purchase" step-up) and the goodwill's is $16,000. Thus, the $4,000 adjustment is allocated $1,455 ($4,000 x 16/44) to the land, $1,090 ($4,000 x 12/44) to the machine and $1,455 ($4,000 x 16/44) to goodwill.(20) The XYZ balance sheet is as follows:
XYZ Partnership balance sheet
(no Sec. 754 election)
Basis FMV
Accounts
receivable $ 0 $ 64,000
Land 16,000 32,000
Machine 20,000 32,000
Goodwill 0 16,000
$36,000 $144,000
Capital-X $13,333(*) $ 48,000
Capital-Y 13,333 48,000
Capital-Z 13,334 48,000
$40,000 $144,000
(*) $20,000 - ($20,000 Sec. 736(a)(2) guaranteed payment/3).
XYZ Partnership balance sheet
(with Sec. 754 election)
Basis FMV
Accounts
receivable $ 0 $ 64,000
Land 17,455 32,000
Machine 21,090 32,000
Goodwill 1,455 16,000
$40,000 $144,000
Capital-X $ 13,333 48,000
Capital-Y 13,333 48,000
Capital-Z 13,334 48,000
$ 40,000 $144,000
Sec. 732(c) Adjustments In Examples 1 and 2 above, W receives only one asset, inventory. When a distributee partner receives multiple properties in liquidation of his interest, the issue of allocation must be addressed.(21) A brief summary and examples from the proposed regulations follow. The general rule is that the basis to be allocated to (non-cash) properties distributed to a partner under Sec. 732(a)(2) or (b) is allocated first to unrealized receivables(22) and inventory items (tier 1 assets) in an amount equal to the adjusted basis of each such property to the partnership immediately before the distribution. If the basis to be allocated is less than the sum of the partnership's adjusted bases in the distributed unrealized receivables and inventory items, the adjusted bases of the distributed tier 1 assets must be decreased as follows. First, the bases of distributed tier 1 assets with unrealized depreciation are decreased in proportion to their respective amounts of unrealized depreciation before the decrease (but only to the extent of each property's unrealized depreciation). Second, to the extent the decrease is not so allocated, it is allocated to the distributed tier 1 assets in proportion to their respective adjusted bases, as adjusted by the first step. If the basis to be assigned as·sign tr.v. as·signed, as·sign·ing, as·signs 1. To set apart for a particular purpose; designate: assigned a day for the inspection. 2. is greater than the basis of the unrealized receivables and inventory items received, the excess is allocated to other (non-cash) property (tier 2 assets) distributed to the partner in the same transaction, first in an amount equal to the adjusted basis of each such tier 2 asset to the partnership immediately before the distribution.(23) Unless the partner's remaining outside basis equals the partnership's bases of the tier 2 assets distributed, an adjustment will be needed. Downward adjustments to tier 2 asset bases are made in the same manner as that described for tier 1 assets: first, according to unrealized depreciation; second, according to adjusted basis. Any increase to the bases of distributed tier 2 assets is allocated first to such property with unrealized appreciation in proportion to each property's respective amount of unrealized appreciation before the increase (but only to the extent of each property's unrealized appreciation). Any remaining basis is allocated to tier 2 assets in proportion to their FMVs. Thus, the second step for decreases is proportionate pro·por·tion·ate adj. Being in due proportion; proportional. tr.v. pro·por·tion·at·ed, pro·por·tion·at·ing, pro·por·tion·ates To make proportionate. to adjusted basis; the second step for increases is proportionate to FMV. Example 4:(24) A is a 25% partner in ABC ABC in full American Broadcasting Co. Major U.S. television network. It began when the expanding national radio network NBC split into the separate Red and Blue networks in 1928. partnership, with an outside basis of $650. ABC distributes Assets 1, 2 and 3 to A in liquidation of his partnership interest. Asset 1 is a tier 1 asset; Assets 2 and 3 are tier 2 assets. ABC'S See Win abc's, MSW abc's, XL abc's, DOS abc's and PKZIP abc's. basis in Asset 1 is $100; its FMV is $200. Asset 2's adjusted basis is $50; its FMV is $400. Asset 3's adjusted basis and FMV are $100. Neither Sec. 736(a) nor 751(b) applies to the distribution. A's $650 outside basis is allocated first to Asset 1 to the extent of that asset's adjusted basis to ABC; thus, A takes an adjusted basis in Asset 1 of $100. The remaining outside basis ($550) is allocated to the tier 2 assets, Assets 2 and 3. First, Asset 2 is allocated $50; Asset 3 is allocated $100. Second, Asset 2 is allocated $350, the amount of its unrealized appreciation (Asset 3 has no unrealized appreciation). Finally, the $50 remaining outside basis is allocated to Assets 2 and 3 in proportion to their FMVs; $40 to Asset 2 ($400/$500 X $50), and $10 to Asset 3 ($100/$500 x $50). After the distribution, A has an adjusted basis of $440 in Asset 2 and $110 in Asset 3. Example 5:(25) B is a 25% partner in ABC partnership with an outside basis of $200. ABC distributes tier 2 Assets 2 and 3 to B in liquidation of his partnership interest. Asset 2 has an adjusted basis and FMV to ABC of $150. Asset 3 has an adjusted basis to ABC of $150 and a $50 FMV. Neither Sec. 736(a) nor 751(b) applies to the distribution. B's outside basis is first assigned to the distributed property to the extent of ABC's basis in each distributed property--$150 to each of Assets 2 and 3. Because the $300 aggregate adjusted basis of the distributed property exceeds the $200 basis to be allocated, a decrease of $100 in the bases of Assets 2 and 3 is required. Because Assets 2 and 3 have unrealized depreciation of zero and $100, respectively, the entire decrease is allocated to Asset 3 to the extent of its unrealized depreciation of $100. After the distribution, B has an adjusted basis of $150 in Asset 2 and $50 in Asset 3. Sec. 734(b) Adjustments If a Sec. 754 election is in effect, under Sec. 734(b) the partnership will adjust the basis of partnership property whenever a partner (1) recognizes gain or loss under Sec. 731(a) or (2) assumes a basis in distributed property different from the partnership's basis in that property.(26) Prop. Regs. Sec. 1.755-1(c) provides guidance on the allocation of such adjustments. When a partner recognizes gain (due to the receipt of money in excess of outside basis) or loss on a distribution, the resulting Sec. 734(b) adjustment to the basis of remaining partnership property is allocated only to capital gain property.(27) When a partner's basis in distributed property is determined under Sec. 732(a)(2) or (b), any resulting Sec. 734(b) adjustment by the electing partnership must be allocated to remaining partnership property of a character (class) similar to that of the distributed property from which the adjustment arose (i.e., either to the capital gain property class or ordinary income property class). The allocation method used by the partnership for the Sec. 734(b) adjustment is similar to that used by the distributee partner for a Sec. 732(c) allocation. Under Prop. Regs. Sec. 1.755-1(c)(2), an increase in basis within a class is allocated first to properties with unrealized appreciation in that class in proportion to their respective amounts of unrealized appreciation before such increase (but only to the extent of each property's unrealized appreciation). Any remaining increase must be allocated among the properties in the class in proportion to their FMVs. A decrease in basis within a class is allocated first to properties in that class with unrealized depreciation in proportion to their respective amounts of unrealized depreciation before such decrease (but only to the extent of each property's unrealized depreciation). Any remaining decrease must be allocated among the properties in the class in proportion to their adjusted bases (as adjusted under the preceding sentence). However, under Prop. Regs. Sec. 1.755-1(c)(3) and (4), the basis of partnership property cannot be reduced below zero; carryover carryover n. in taxation accounting, using a tax year's deductions, business losses or credits to apply to the following year's tax return to reduce the tax liability. (See: carryback) adjustments are possible. For example, in the case of a distribution, if an increase or a decrease in the basis of undistributed Adj. 1. undistributed - (of investments) not distributed among a variety of securities undiversified - not diversified property cannot be made because the partnership owns no property of the character required to be adjusted, or (in the case of a decrease) because the basis of all the property of a like character has been reduced to zero, the adjustment is made when the partnership subsequently acquires property of a like character to which an adjustment can be made. There may also be goodwill issues. To the extent goodwill is reflected in the FMV of the property distributed, a portion of the adjustment must be allocated to partnership goodwill, under Prop. Regs. Sec. 1.755-1(c)(5). Allocating Among Classes Example 6:(28) A, B and C form equal partnership ABC. A contributes $50,000 and Asset 1, capital gain property with a $50,000 FMV and an adjusted basis of $25,000. B and C each contribute $100,000 cash. ABC uses the cash to purchase Assets 2, 3, 4, 5 and 6; ABC has a Sec. 754 election in effect. None of the assets is an unrealized receivable.(29) After seven years, the Years, The the seven decades of Eleanor Pargiter’s life. [Br. Lit.: Benét, 1109] See : Time adjusted basis and FMV of ABC's assets are as follows:
Adjusted
Assets basis FMV
Capital gain property:
Asset 1 $25,000 $75,000
Asset 2 100,000 117,500
Asset 3 50,000 60,000
Subtotal $175,000 $252,500
Ordinary income property:
Asset 4 $40,000 $45,000
Asset 5 50,000 60,000
Asset 6 10,000 2,500
Subtotal $100,000 $107,500
Total $275,000 $360,000
Because the inventory items-(Assets 4, 5 and 6) have not substantially appreciated and there are no unrealized receivables, Sec. 751(b) does not apply. ABC distributes Assets 3 and 5 to A in complete liquidation of his partnership interest and Sec. 736(a) does not apply. A's basis in his partnership interest is $75,000, which is allocated under Sec. 732(c) first to Asset 5 (inventory) in an amount equal to its adjusted basis ($50,000) to ABC.(30) A's remaining $25,000 of outside basis is then allocated to Asset 3, the only capital gain property distributed.(31) ABC has a (positive) $25,000 Sec. 734(b) adjustment ($50,000 Asset 3 basis to ABC-$25,000 Asset 3 basis to A) to its remaining capital gain property. Allocating within capital gain property: The $25,000 Sec. 734(b) adjustment to capital gain property must be allocated to Asset 1 and Asset 2 in proportion to the positive difference between the FMV and basis of each. Asset l's FMV exceeds its basis by $50,000;Assets 2's FMV exceeds its basis by $17,500. Thus, Asset l's basis will be increased by $18,519 ($25,000 x ($50,000/$67,500)) to $43,519;Asset 2's basis will be increased by $6,481 ($25,000 x ($17,500/$67,500)) to $106,481. Allocating within ordinary income property: As corrected from the Example in Prop. Regs. Sec. 1.755-1(c)(6), the distribution in Example 6 above does not result in a Sec. 734(b) adjustment to the basis of the remaining ordinary income property. However, if an adjustment did occur, the method of allocation presented in the regulation's Example is also incorrect Incorrect means to not be correct and may also refer to:
v. Past participle of mistake. adj. 1. Wrong or incorrect in opinion, understanding, or perception. 2. Based on error; wrong: a mistaken view of the situation. concludes that the basis of ordinary income assets must be increased by $12,500. If this were correct, the basis increase would have to be allocated, first, among the remaining ordinary income assets in proportion to the difference between the FMV and basis of each, but only to the extent of such property's unrealized appreciation. Asset 4's FMV, $45,000, exceeds its $40,000 basis by $5,000; Asset 6's FMV is less than its adjusted basis. Therefore, step one in the allocation scheme would be to increase Asset 4'S basis to $45,000. There would still be $7,500 of basis to be allocated ($12,500 - $5,000) between Assets 4 and 6 based on their relative FMVs. Asset 4's adjusted basis ($45,000, as adjusted in step 1) would be increased by $7,105 ($7,500 x ($45,000/$47,500)) to $52,105. Asset 6's adjusted basis would be increased by $395 ($7,500 x ($2,500/$47,500)) to $10,395. The Example in Prop. Regs. Sec. 1.755-1(c)(6) is incorrect in stating that the entire basis adjustment would be allocated to Asset 4. These errors should be corrected when the regulations are finalized See finalization. . Interaction with Sec. 743(b) If an interest in a partnership with a Sec. 754 election in effect is transferred by sale, exchange or on a partner's death, the partnership property's basis is adjusted under Sec. 743(b). This basis adjustment is made only for the transferee partner; no adjustment is made to the common basis of partnership property. For example, according to Prop. Kegs. Sec. 1.743-1(g)(2), if a partner receives a distribution of property for which another partner has a basis adjustment, the distributee does not take the basis adjustment into account under Sec. 732; the basis adjustment is instead reallocated among the remaining items of partnership property under Prop. Regs. Sec. 1.755-1(c) for the transferee partner to whom the basis adjustment belongs. Further, if the transferee's partnership interest is subsequently liquidated DAMAGES, LIQUIDATED, contracts. When the parties to a contract stipulate for the payment of a certain sum, as a satisfaction fixed and agreed upon by them, for the not doing of certain things particularly mentioned in the agreement, the sum so fixed upon is called liquidated damages. (q.v. , any basis adjustment to property in which the transferee is deemed to relinquish his interest (either because it remains in the partnership or is distributed to another partner) is reallocated immediately before the distribution among the properties (of like class) distributed to the transferee under Prop. Regs. Sec. 1.755-1(c).(32) Example 7:(33) A, B and C are equal partners in partnership ABC; each originally contributed $10,000 cash. ABC used the contributions to purchase five nondepreciable capital assets. After seven years, ABC's balance sheet is as follows:
Adjusted
Assets basis FMV
Asset 1 $10,000 $10,000
Asset 2 4,000 6,000
Asset 3 6,000 6,000
Asset 4 7,000 4,000
Asset 5 3,000 13,000
Total $30,000 $39,000
Capital
Partner-A $10,000 $13,000
Partner-B 10,000 13,000
Partner-C 10,000 13,000
Total $30,000 $39,000
A sells her interest to T for $13,000 when ABC has a Sec. 754 election in effect. T receives a $3,000 Sec. 743(b) basis adjustment in partnership property.(34) After a proper allocation of the Sec. 743(b) adjustment,(35) TBC's balance sheet is as follows:
Special
Adjusted basis
Assets basis FMV adjustment
Asset 1 $10,000 $10,000 $ 0
Asset 2 4,000 6,000 666.67
Asset 3 6,000 6,000 0
Asset 4 7,000 4,000 (1,000.00)
Asset 5 3,000 13,000 3,333.33
Total $30,000 $39,000 $3,000.00
Capital
Partner T $10,000 $13,000 $3,000
Partner B 10,000 13,000 0
Partner C 10,000 13,000 0
Total $30,000 $39,000 $3,000
Variation 1: TBC tbc abbr (= to be confirmed) → por confirmar tbc abbr (= to be confirmed) → noch zu bestätigen tbc abbr distributes Asset 5 to C in complete liquidation of his interest. Because the $3,333.33 Sec. 743(b) basis adjustment in Asset 5 applies only to T, the partnership's basis in Asset 5 is $3,000 in C's view. T's special basis adjustment of $3,333.33 in Asset 5 is reallocated among Assets 1 through 4 as to T under Prop. Regs. Sec. 1.755-1(c). Variation 2: TBC distributes Asset 5 to T in complete liquidation of his interest. Because T's interest in all the other partnership property is relinquished, his special basis adjustments for Assets 1 through 4 (all of the same class as distributed Asset 5) are reallocated to Asset 5 immediately before the distribution. Thus, for purposes of Secs. 732 and 734, the partnership's basis in Asset 5 in T's view is $6,000, the sum of (1) $3,000, TBC's common basis in Asset 5, plus (2) $3,333.33, T's basis adjustment in Asset 5, plus (3) $666.67, T's basis adjustment in Asset 2 plus (4) ($1,000), T's basis adjustment in Asset 4. Special Partnership Basis to Transferee Sec. 732(d) provides a special rule to determine the basis of property distributed to a transferee partner who acquired any part of his partnership interest in a transfer (sale, exchange or death of a partner) for which a Sec. 754 election was not in effect. If the transferee partner receives a distribution of property (other than money) within two years after so acquiring his interest, he may elect to treat as the adjusted partnership basis of such property the adjusted basis the property would have had as to that partner had Sec. 743(b) applied to the acquisition.(36) If the property distributed to the electing partner is not the same as that that would have had a Sec. 743(b) special basis adjustment, the Sec. 732(d) special basis adjustment applies to any like property (i.e., ordinary income property or capital gain property) received in the distribution, as long as the transferee partner has relinquished his interest in the property for which he would have had a special basis adjustment.(37) Example 8:(38) T purchased a 25% interest in ABC partnership for $17,000. A Sec. 754 election was not in effect; had it been in effect, T would have had a Sec. 743(b) adjustment of $500, all allocated to the inventory Within two years after the acquisition, T retired from the partnership and received the following property in liquidation of his partnership interest:
ABC's
Assets adjusted basis FMV
Cash $1,500 $1,500
Inventory 3,500 4,000
Asset 1 2,000 4,000
Asset 2 4,000 5,000
Assets 1 and 2 are neither unrealized receivables nor inventory and neither Sec. 751(b) nor Sec. 736(a) applies to the distribution; T makes a Sec. 732(d) election and his outside basis remains $17,000 immediately before the distribution. It is immaterial Not essential or necessary; not important or pertinent; not decisive; of no substantial consequence; without weight; of no material significance. immaterial adj. whether the inventory T receives existed when he acquired his interest; thus, ABC's basis in the distributed inventory is increased by $500 in T's view. The amount to be allocated under Sec. 732(c) among the (non-cash) properties received by T in the liquidating distribution is $15,500 ($17,000 T's outside basis - $1,500 cash received). Inventory (a tier 1 asset) takes a $4,000 basis in T's hands ($3,500 common partnership basis + $500 Sec. 732(d) adjustment); $11,500 ($15,500 - $4,000) remains to be allocated to the tier 2 items, Assets 1 and 2. The allocation of the $11,500 is accomplished in three steps. First, $2,000 and $4,000 are allocated to Assets 1 and 2, respectively, under the Sec. 732(c)(1)(B)(i) carryover rule; this leaves $5,500 ($11,500 - $2,000 - $4,000) to be allocated. Second, $2,000 and $1,000 are allocated to Assets 1 and 2, respectively, under the Sec. 732(c)(2) (A) unrealized appreciation rule; this leaves $2,500 ($5,500 - $2,000 - $1,000) to be allocated. Finally, the $2,500 is allocated under the FMV rule of Sec. 732(c)(2)(B), $1,111 ($2,500 x ($4,000/$9,000)) to Asset 1 and $1,389 ($2,500 x ($5,000/$9,000)) to Asset 2. Thus, T has a basis of $5,111 ($2,000 + $2,000 + $1,111) in Asset 1 and $6,389 ($4,000 + $1,000 + $1,389) in Asset 2. Conclusion The tax law sometimes treats a partnership as an entity and sometimes as an aggregate of its partners. In addition, it is vitally concerned with the distinction between capital gains and ordinary income. The complexity that results is reflected in recently issued subchapter K proposed regulations, especially when applied to the liquidation of a partner's interest. This tax complexity is in stark contrast to the relative sanity Reasonable understanding; sound mind; possessing mental faculties that are capable of distinguishing right from wrong so as to bear legal responsibility for one's actions. SANITY, med. jur. The state of a person who has a sound understanding; the reverse of insanity. of the comparable financial accounting treatment.
W's interest W received
Item (FMV) W's share Excess
Cash $4,000
Land 8,000
Machine 4,000
Recapture potential 4,000
Accounts receivable 8,000
Inventory 16,000 $16,000 [$28,000]
$16,000
[$28,000]
$44,000 $16,000 $16,000
W
Item relinquished
Cash $4,000
Land 8,000
Machine 4,000
Recapture potential [4,000]
Accounts receivable [8,000]
Inventory
[$28,000]
$16,000
For more information about this article, contact Professor Orbach Orbach may refer to:
(networking) edu - ("education") The top-level domain for educational establishments in the USA (and some other countries). E.g. "mit.edu". The UK equivalent is "ac.uk". . (1) For Sec. 736(b)(3)(A) purposes, the determination of whether capital is a material income-producing factor is made under general tax principles. Capital is not a material income-producing factor when substantially all of the business' gross income consists of fees, commissions or other compensation for personal services personal services n. in contract law, the talents of a person which are unusual, special or unique and cannot be performed exactly the same by another. These can include the talents of an artist, an actor, a writer, or professional services. performed by an individual. Most professional partnerships do not have capital as a material income-producing factor, under this definition; see H. Rep't No. 103-213, 103d Cong n. 1. (Med.) An abbreviation of Congius. ., 1st Sess. (1993), pp. 697-698. (2) For Sec. 751 (b) purposes, hot assets include unrealized receivables and substantially appreciated inventory items. (3) For Sec. 751 purposes, Sec. 1245 recapture potential is an unrealized receivable with a zero basis; see Sec. 751(c) and Regs. Sec. 1.751-1(c)(5). (4) Inventory items in Example 1 include the inventory, the accounts receivable and the $16,000 Sec. 1245 recapture potential, under Regs. Sec. 1.751-1(d)(2)(ii). The adjusted basis and FMV of the inventory items are as follows:
Basis FMV
Accounts receivable $ 0 $ 32,000
Inventory 32,000 64,000
Recapture potential 0 16,000
Total $32,000 $112,000
Because $112,000 exceeds ($32,000 X 1.20), the inventory items are substantially appreciated. Even if recapture potential is not an inventory item (under the theory that the machine is a Sec. 1231 asset to which Sec. 751(d)(2) does not apply), the (remaining) inventory items are still substantially appreciated, and partnership hot assets remain as in Example 1. (5) The style of analysis is adapted from Regs. Sec. 1.751-1(g), Example 5. (6) Under Regs. Sec. 1.751-1(b)(2)(iii), the Sec. 751(b) deemed distribution is treated as a current (i.e., nonliquidating) distribution even when, as here, the partner's interest is being liquidated. The non-Sec. 751(b) distribution to W is a liquidating distribution. (7) This step-up is due solely to the deemed exchange; whether the partnership has made a Sec. 754 election is irrelevant Unrelated or inapplicable to the matter in issue. Irrelevant evidence has no tendency to prove or disprove any contested fact in a lawsuit. irrelevant adj. . (8) This step-down would have been meaningful to the partnership had it made a Sec. 754 election; see example 2 below. (9) See, e.g., Baker et al., Advanced Financial Accounting (Irwin/McGraw Hill, 4th ed., 1998), pp. 874-876. (10) See Regs. Sec. 1.704-1(b)(2)(iv)(b)(5) (required), -1(b)(2)(iv)(e)(1) (required) and -1(b)(2)(iv)(f) (elective elective non-urgent; at an elected time, e.g. of surgery. elective adjective Referring to that which is planned or undertaken by choice and without urgency, as in elective surgery, see there noun Graduate education noun ). (11) APB Opinion APB opinion A determination by the former Accounting Principles Board regarding the way a certain financial transaction is to be treated for reporting purposes. No. 18, The Equity Method of Accounting for Investments in Common Stock (March 1971), as amended a·mend v. a·mend·ed, a·mend·ing, a·mends v.tr. 1. To change for the better; improve: amended the earlier proposal so as to make it more comprehensive. 2. . (12) AIN-APB18, #2, Investments in Partnerships and Ventures (November November: see month. 1971), as amended. (13) Because the accounting treatment of a liquidation of a partner's interest is impervious im·per·vi·ous adj. 1. Incapable of being penetrated: a material impervious to water. 2. Incapable of being affected: impervious to fear. to the various tax issues addressed below, further financial accounting analysis is not provided in the examples that follow. (14) See Sec. 734(b) and Prop. Regs. Sec. 1.755-1(c)(1). (15) The machine is capital gain property (i.e., a capital asset or Sec. 1231(b) property); the Sec. 1245 recapture potential is not broken out for this purpose. (16) The Sec. 1245 recapture potential is not an unrealized receivable for Sec. 736 purposes, according to Secs. 736(b)(2) and 751(c). (17) Such payments are Sec. 736(a) payments; see Sec. 751(b)(2)(B). (18) See Regs. Sec. 1.751-1 (g), Example 6; see also Regs. Sec. 1.1245-4(f). (19) Sec. 734(b)(1)(A); Prop. Regs. Sec. 1.755-1(c)(1)(ii). (20) Prop. Regs. Sec. 1.755-1(c)(5) requires that a portion of a Sec. 734(b) adjustment to capital gain property be allocated to goodwill under the regular allocation rules, but only to the extent that goodwill exists and is reflected in the FMV of the property distributed in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with the difference between such FMV of the goodwill and its adjusted basis at the time of the distribution. (21) See Sec. 732(c); see also Prop. Kegs. Sec. 1.732-1(c). A. thorough discussion of the Sec. 732(c) allocation rules is provided in McCoskey and Streer, "The TRA TRA Training TRA Transfer TRA Transition TRA Tennessee Regulatory Authority TRA Telecommunications Regulatory Authority (Oman) TRA Tax Reform Act (1976, 1984, or 1986) TRA Teachers Retirement Association '97's New Basis Allocation Rules for Property Distributions," 29 The Tax Adviser 486 (July July: see month. 1998). (22) Section 6010(m) of the IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws. Restructuring restructuring - The transformation from one representation form to another at the same relative abstraction level, while preserving the subject system's external behaviour (functionality and semantics). and Reform Act of 1998 amended Sec. 751 (c) to provide that for purposes of the Sec. 732(c) allocation rules, "unrealized receivables" has the meaning given in Sec. 751(c), including the last two sentences of Sec. 751(c). In particular, potential depreciation recapture depreciation recapture See recapture of depreciation. is broken out as an unrealized receivable for Sec. 732(c) purposes; see Regs. Sec. 1.751-1 (c)(4)(iii) and (v). (23) Tier 1 assets have now been eliminated from consideration; the basis of a distributed tier 1 asset in the hands of the distributee partner cannot be greater than its basis to the partnership before the distribution, unless Sec. 751(b) applies. (24) Adapted from Prop. Regs. Sec. 1.732-1(c)(4), Example 1. (25) Adapted from Prop. Regs. Sec. 1.732-1(c)(4), Example 2. (26) If Sec. 751(b) applies, the deemed distribution under that provision is given effect for Secs. 754 and 734(b) purposes. (27) Prop. Regs. Sec. 1.755-1(c)(1)(ii) . A partnership's "capital gain property" consists of capital assets and Sec. 1231 (b) property; all other partnership property is "ordinary income property," according to Prop. Regs. Sec. L755-1(a). (28) Adapted and corrected from the Example in Prop. Regs. Sec. 1.755-1(c)(6), which contains numerous errors. (29) In addition, it is assumed that none of Assets 1, 2 or 3 is an inventory item under Sec. 751 (d); see Sec. 751(d)(4). The Service assumes in the Example in Prop. Regs. Sec. 1.755-1(c)(6), that "[n]one of the partnership's assets was section 751 property." However, all ordinary income property. (as defined in Prop. Regs. Sec. 1.755-1(a)(2)) almost assuredly are inventory items under Sec. 751(d). (30) Sec. 732(c)(1)(A)(i); the proposed regulations err in assigning as·sign tr.v. as·signed, as·sign·ing, as·signs 1. To set apart for a particular purpose; designate: assigned a day for the inspection. 2. a $37,500 basis to each of Assets 3 and 5. (31) Technically, Asset 3 is first allocated $50,000, its adjusted basis to ABC under Sec. (c)(1)(B)(i). The decrease of $25,000 ($50,000 - $25,000 remaining outside basis) is allocated to Asset 3 under Secs. 732(c)(1)(B)(ii) and (c)(3). (32) Prop. Regs. Sec. 1.743-1(g)(3). If a partner with a Sec. 743(b) basis adjustment for assets in one class (e.g., capital gain property) receives a liquidating distribution that does not include any assets of that class, he loses the Sec. 743(b) adjustment, which instead becomes part of the common basis of the remaining partnership property; see Prop. Regs. Sec. 1.743-1(g)(1)(ii) and Regs. Sec. 1.734-2 (b). (33) Adapted from the Example at Prop. Regs. Sec. 1.743-1(g)(5). (34) See Prop. Kegs. Sec. 1.743-1(a), (b),(c) and (d); details of this computation Computation is a general term for any type of information processing that can be represented mathematically. This includes phenomena ranging from simple calculations to human thinking. are beyond the scope of this article. (35) See Prop. Regs. Sec. 1.755-1(b); details of this computation are beyond the scope of this article. (36) Regs. Sec. 1.732-1(d)(1)(v) provides that if a Sec. 732(d) election is made, the adjustment for the transferee partner is not diminished di·min·ish v. di·min·ished, di·min·ish·ing, di·min·ish·es v.tr. 1. a. To make smaller or less or to cause to appear so. b. by any depletion depletion n. when a natural resource (particularly oil) is being used up. The annual amount of depletion may, ironically, provide a tax deduction for the company exploiting the resource because if the resource they are exploiting runs out, they will no longer be able or depreciation of that portion of the basis of partnership property that arises from such adjustment. (37) Regs. Sec. 1.732-1(d)(1)(v). In certain cases, application of Sec. 732(d) is mandatory Peremptory; obligatory; required; that which must be subscribed to or obeyed. Mandatory statutes are those that require, as opposed to permit, a particular course of action. ; see Sec. 732(d), last sentence and Regs. Sec. 1.732-1(d)(4). Given the changes made to Sec. 732(c) by the Taxpayer Relief Act of 1997, Treasury and the Service believe the distortions targeted by the mandatory provisions are less likely to occur; thus, the preamble A clause at the beginning of a constitution or statute explaining the reasons for its enactment and the objectives it seeks to attain. Generally a preamble is a declaration by the legislature of the reasons for the passage of the statute, and it aids in the interpretation of to the proposed regulations seeks comments on the extent to which (or whether) Treasury and the IRS should exercise their authority to mandate A judicial command, order, or precept, written or oral, from a court; a direction that a court has the authority to give and an individual is bound to obey. A mandate might be issued upon the decision of an appeal, which directs that a particular action be taken, or upon a application of Sec. 732(d). (38) Adapted from the Example in Prop. Kegs. Sec. 1.732-1(d)(1)(vi). Authors' note: The authors wish to express their appreciation to Glenn Dance and Brian The name Brian (sometimes spelled Bryan) comes from an Irish backround. It is of Celtic origin and its meaning may be "hill" or "strong, noble, and high"[1]. Knudson of Arthur' Andersen LLP LLP - Lower Layer Protocol for their many helpful comments and suggestions. Kenneth N. Orbach, CPA Professor School of Accountancy Florida Atlantic University Boca Raton, FL Sharon S. Lasser, CPA Assistant Professor School of Accountancy Florida Atlantic University Boca Raton, FL Kathryn M. Means, CPA Professor School of Accountancy Florida Atlantic University Boca Raton, FL |
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