IPED Tax Credit Property Disposition 2008: Obligations and Opportunities Through Year 15 and Beyond Boston, Massachuset

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IPED Tax Credit Property Disposition 2008: Obligations and Opportunities Through Year 15 and Beyond Boston, Massachusetts, November 20-21, 2008 Tax Consequences of Dispositions Forrest David Milder Nixon Peabody LLP 100 Summer Street Boston, MA 02110 617-345-1055 fmilder@nixonpeabody.com

Kinds of Dispositions Sale of association Interest Sale of property and distribution of pick up to accomplices Donation of organization premium

Sale of association Interest Gain is equivalent to money and other property got diminished by the accomplice's premise to his/greatest advantage The accomplices' share of nonrecourse obligation is incorporated into this calculation as money got. Rev. Rul. 74-40.

Example Partner's premise is $100,000, accomplice's share of obligation on property is $80,000. Accomplice gets $50,000 for the association intrigue. Pick up is $80,000 (obligation eased) in addition to $50,000 (money got) less $100,000 (premise), or $30,000

Sale of property and portion of pick up to accomplices Gain is figured at association level, and afterward dispensed to the accomplice Subsequent dispersion of trade can come about out further pick up or misfortune

Example GP's capital record is $1. LP's is $2m Property has premise of $3m, and there's $1m of obligation. Deals cost is $4.8m Gain is $4.8m less $3m, or 1.8m. On the off chance that 80% of the pick up is dispensed to the GP, he gets $1.44m of pick up, and the LP gets .36m of pick up. Along these lines, top records are presently GP $1.44m and LP $2.36m. Continues of $4.8m go $1m to pay off the obligation, $1.44m to GP and $2.36m to LP.

Donation of association intrigue Charitable Contribution of a Limited Partnership Interest is dealt with as a "section blessing part deal". Rev. Rul. 75-194. Treas. Reg. segment 1.1011-2(c), illustration 4. The abundance of the estimation of the property over the obligation is the blessing, yet the measure of the obligation is the "returns of offer" The Basis in the property must be isolated between the two

Example Assume: Partnership intrigue has a gross estimation of $1.5 m; accomplice's share of nonrecourse obligation is $1m; premise in intrigue is $900k. The measure of the blessing is the $1.5m net estimation of the property less $1m of obligation, or $500k. The "returns of offer" is the obligation, or $1m. The premise is distributed between the blessing and the obligation, in this way, 33% ($500k/$1.5m) goes to the blessing, and 66% ($1m/$1.5m) goes to the deal. Since the premise is $900k, this would be $300k to the blessing and $600k to the deal. Along these lines, the blessing is $500k; the deal is $1m of "continues" less $600k of premise, or $400k of pick up – i.e., $500k of pick up and $400k of reasoning.

Other Tax Issues Ordinary Income versus Capital Gain Installment Sales Partnership Termination Distributions as per Capital Accounts Nonpayment of Deferred Fees Sale of Less Than All of an Interest

Ordinary Income versus Capital Gain Receivables and deterioration recover are dealt with as "hot resources" under Section 751, and are liable to impose at conventional rates. This is valid, regardless of the possibility that the association intrigue (instead of organization resources) is sold. Partnerships pay a similar rate on both (35%), yet people don't (35% versus 15%)

Distributions as per Capital Accounts What's the business bargain? Get LP to an objective? (like unique capital commitment?) Get GP to a specific rate? Share residuals at a specific rate? The gatherings frequently have an arrangement that requires the GP to get a high rate (e.g., 80%) of continues, and the LP to get the adjust, paying little respect to where there capital records are at the season of the deal. Be that as it may, disseminations must be made as per capital records So, if the LP has a substantial capital record, it might get the vast majority of the cash What to do when the numbers don't make any sense?

Example GP's capital record is $1. LP's is $2m Bus. arrangement is 80% to GP, 20% to LP Property has premise of $3m, and there's $1m of obligation. Deals cost is $4.8m Gain is $4.8m less $3m, or 1.8m. On the off chance that whole measure of pick up is designated to GP, then top records are presently GP $1.8m and LP $2m. Continues of $4.8m go $1m to pay off the obligation, $1.8m to GP and $2m to LP. This is 47%- - 53%, not 80%- - 20%.

Installment Sales Installment deals treatment is accessible for capital resource some portion of offers value So, not for devaluation recover or receivables Also there will be an intrigue part (at AFR) on postponed installments

Nonpayment of Deferred Fees Suppose that it's 15 years after the fact, and the advancement charge is unpaid. Excusing it is an assessable occasion The IRS may question inability to pay the advancement expense, since it wasn't only a depreciable/finding thing; it likewise went into duty credit premise.

Partnership Termination An association "ends" for assessment purposes if inside a 12-month time frame there is a deal or trade of 50 percent or a greater amount of the aggregate enthusiasm for organization capital and benefits. Not that quite a bit of an expense issue, But rather Many organization assentions require unique endorsements or assessment suppositions if the exchange would bring about an end.

Sale of Less Than All of an Interest Can have LIHTC recover if an accomplice's advantage is lessened underneath 66-2/3% of what it used to be (Reg. 1.47-6) E.g., accomplice possesses a 99% intrigue, and it is lessened to 60%. Thirty-nine percent might be liable to recover Elimination of recover bond rules make this less essential, if property is well run