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Treatment of accrued partnership property tax liabilities for basis under Sec. 752.

Accrued property taxes can affect partners' bases in their partnership interests and the determination of partnership minimum gain, depending on whether the resulting liability is recourse or nonrecourse under the governing statute of the taxing authority. As each jurisdiction specifies its own remedy for failure to meet the property tax obligation, the characterization of these liabilities must be determined under the applicable taxing statute to decide their recourse/nonrecourse nature (and consequently which partners are to be allocated a share of the liability).

In some jurisdictions, the local taxing authorities may have a direct claim against the property as well as a partner's personal assets for any unpaid taxes. This type of accrued liability is considered to be recourse. Partners subject to such direct claims bear the economic risk of loss for the accrued taxes and, therefore, may be required to contribute money to the partnership or make a direct payment to satisfy the tax obligation. These recourse liabilities should be allocated to those partners who bear the economic risk of loss (Regs. Sec. 1.752-2(a)).

In other jurisdictions, the local taxing authorities may satisfy their claim solely from the property. In this case, the accrued liability is deemed to be nonrecourse. The partners bear no potential economic risk of loss for the accrued taxes, as they will not be required to make any contributions to the partnership or additional payments to satisfy the tax obligation. All partners should be allocated a portion of these accrued taxes according to their sharing ratios under the three-tier system applicable to nonrecourse liabilities established in Regs. Sec. 1.752-3. Additionally, accrued property taxes that fall in this category increase the minimum gain attributable to the collateralizing property.

From William T. Carman, CPA, Denver, Colo., and Jordan S. Zoot, CPA, New York, N.Y.
COPYRIGHT 1992 American Institute of CPA's
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Copyright 1992, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Author:Zoot, Jordan S.
Publication:The Tax Adviser
Article Type:Brief Article
Date:Nov 1, 1992
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