Goulder V. US: Case Study

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Code section 731(a) controls the extent to which gain or loss shall be recognized to the partner by the partnership in a distribution of cash or other property. Any gain or loss recognized from a partner’s distribution is treated as gain or loss from the sale or exchange of a partnership interest, which is ordinarily a capital gain or loss. Beginning in 1995, marketable securities are treated as cash, which shall be taken into account at their fair market value as of the date of the distribution.

Guidance to Taxpayer
Taxpayer should have a better understanding about§721 so as to apply it more accurately and effectively. Firstly, gain shall be recognized to the partner to the extent that the money distributed exceeds the adjust basis in the
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U.S., 76 AFTR 2d 95-6001, pensioner was Herbert J. Goulder, executor of the estate of Adolph P. Goulder. In 1969, Adolph P. Goulder became a general partner at Apartment Living Associates Partnership. Four years later, the partnership purchased a residential apartment building in Ohio with a non-recourse loan, which was guaranteed by the Department of Housing and Urban Development (HUD). In 1977, HUD began to foreclosure proceedings because the partnership defaulted on the loan. One year later, Adolph P. Goulder died and his estate became a partner in the partnership, which resulted in a stepped-up basis in the interest of the partnership. In 1980, HUD sold the apartment building, resulting in an ordinary income and long-term capital gain to the partnership. Goulder’s estate paid taxes on the gain of the building. At the same year, the partnership distributed all the assets to partners except for the security deposit that was distributed in 1981. The distribution of all the assets resulted a loss to Goulder’s estate because of the stepped-up basis. Herbert recognized the loss for the estate in 1980. However, the IRS disallowed the loss, claiming that the partnership was terminated in 1981, due to the distribution of the security deposits, so the loss could only be claimed in 1981. There was no gain in 1981 to offset the loss. In 1991, Goulder filed a claim under § 731(a) for the refund of $36,228.90 of the tax paid for the gain on the sale of building. He stated that because there wasn 't a continuation of the business, financial operation, or venture for the partnership in 1981 under §761, the partnership interest was terminated and liquidated in 1980. In the end, the estate prevail IRS. In other words, deceased partner 's estate could deduct loss arising from partnership 's liquidation in 1980 when the year assets were distributed under §

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