[Federal Register Volume 59, Number 248 (Wednesday, December 28, 1994)]
[Unknown Section]
[Page ]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-31435]
[Federal Register: December 28, 1994]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 8585]
RIN 1545-AS00
Allocations Reflecting Built-in Gain or Loss on Property
Contributed to a Partnership
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations.
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SUMMARY: This document contains final regulations under section 704 of
the Internal Revenue Code relating to the remedial allocation method
with respect to property contributed by a partner to a partnership and
to allocations with respect to securities and similar investments owned
by a partnership. Changes to the applicable law were made by the Tax
Reform Act of 1984 (the 1984 Act) and the Revenue Reconciliation Act of
1989 (the 1989 Act). The final regulations affect partnerships and
their partners and provide guidance needed to comply with the
applicable tax law.
EFFECTIVE DATE: These regulations are effective December 21, 1993.
FOR FURTHER INFORMATION CONTACT: Deborah Harrington at (202) 622-3050
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Introduction
This document adds Secs. 1.704-3(d), 1.704-3(e)(3) and 1.704-
3(e)(4) to the Income Tax Regulations (26 CFR part 1) under sections
704(c)(1)(A) and 704(c)(3), removes existing Secs. 1.704-3(e)(2)(iv)
and 1.704-3(e)(2)(v), revises existing Secs. 1.704-1(b)(1)(vi), 1.704-
1(b)(2)(iv)(d)(3), 1.704-1(c), 1.704-3(a)(1), 1.704-3(a)(3)(i), and
1.704-3(e)(2)(iii), and removes Sec. 1.704-3T of the Temporary Income
Tax Regulations.
Background
On December 22, 1993, final regulations (TD 8500, 58 FR 67676) (the
1993 regulations) under section 704 relating to allocations with
respect to property contributed by a partner to a partnership were
published in the Federal Register. The 1993 regulations implement
section 704(c) as amended by the 1984 Act and the 1989 Act. The
portions of the 1993 regulations relating to the remedial allocation
method and allocations with respect to securities and similar
investments owned by a partnership were reserved. The IRS and Treasury
contemporaneously issued temporary regulations (TD 8501, 58 FR 67684)
(the temporary regulations) addressing the issues reserved in the final
regulations. A notice of proposed rulemaking (58 FR 67744) cross-
referencing the temporary regulations was published in the Federal
Register on the same day. Comments responding to the notice were
received, and a public hearing was held on April 4, 1994. After
considering the comments and the statements made at the hearing, the
IRS and Treasury adopt the proposed regulations as revised by this
Treasury decision and withdraw the temporary regulations. The IRS and
Treasury also amend the 1993 regulations as described by this Treasury
decision.
Explanation of Provisions
Remedial Allocation Method
The final regulations generally adopt the provisions of the
proposed regulations with respect to the remedial allocation method of
making allocations under section 704(c). Accordingly, under the final
regulations, a partnership may eliminate ceiling rule distortions by
making remedial allocations of income, gain, loss, or deduction to the
noncontributing partners equal to the full amount of the limitation
caused by the ceiling rule, and offsetting those allocations with
remedial allocations of deduction, loss, gain, or income to the
contributing partner. In response to comments, the final regulations
emphasize that the remedial allocation method involves the creation of
notional tax items by the partnership and is not dependent upon the
actual tax items recognized by the partnership.
One comment questioned the Secretary's authority to issue
regulations allowing partnerships to create notional tax items in order
to make allocations under section 704(c). In enacting section 704(c),
Congress gave the Secretary broad authority to permit allocations that
correct ceiling rule distortions. See H.R. Rep. No. 98-432 (Part 2),
98th Cong., 2d Sess. 1209 (1984). Offering partnerships a voluntary
method of correcting ceiling rule distortions by creating notional tax
items is consistent with this congressional grant of authority.
One comment suggested that the final regulations adopt the remedial
allocation method as a safe harbor method for making section 704(c)
allocations. Another comment suggested that the remedial allocation
method be a baseline for measuring whether the section 704(c) method
used by a partnership has the effect of substantially reducing the
present value of the aggregate tax liabilities of the partners for
purposes of the anti-abuse rule set forth in Sec. 1.704-3(a)(10).
The IRS and Treasury continue to believe it is appropriate to
require that all allocation methods, including the remedial allocation
method, be subject to the anti-abuse rule. There may be circumstances
under which contributions of property could be made and the remedial
allocation method adopted with a view to shifting tax consequences
impermissibly. It would be inconsistent with the general scope of these
regulations to prescribe a method of allocation that is always
reasonable regardless of the facts and circumstances. Furthermore, the
IRS and Treasury believe that it would be inappropriate to adopt the
remedial allocation method as a baseline for measuring whether the
partners' aggregate tax liability has been reduced. Such a baseline
would make the remedial allocation method preeminent, undercutting its
elective nature.
One comment suggested that the regulations require partnerships to
elect the remedial allocation method in their partnership agreements.
The comment did not specify any reason for imposing this requirement on
partnerships.
The section 704(c) regulations generally allow partnerships to
choose a reasonable section 704(c) method. The regulations only require
adoption of an allocation method in the partnership agreement for those
section 704(c) methods that have a significant potential for abuse. See
Secs. 1.704-3(c)(3)(ii) and 1.704-3(c)(3)(iii)(B) of the 1993
regulations. The use of the remedial allocation method can generally be
determined from the partnership's books and records. Therefore, the
final regulations do not require that the method be adopted in the
partnership agreement.
The temporary and proposed regulations require that a partnership
using the remedial allocation method recover the portion of its book
basis in the property equal to its tax basis in the property at the
time of contribution in the same manner as the tax basis is recovered.
The remainder of the partnership's book basis in the property (the
amount by which book basis exceeds adjusted tax basis) is recovered
using any applicable recovery period and depreciation (or other cost
recovery) method available to the partnership for newly purchased
property placed in service at the time of contribution. The final
regulations clarify that the recovery period and depreciation (or other
cost recovery) method adopted by the partnership for this purpose must
be one that is available for newly purchased property of the type
contributed, including any applicable first-year conventions.
Under the temporary and proposed regulations, remedial allocations
are reasonable only if they have the same effect on each partner's tax
liability as the item limited by the ceiling rule. Some comments
requested clarification of this provision.
In response to these comments, the final regulations provide that
the tax attributes of remedial allocations of income, gain, loss, or
deduction to noncontributing partners must be the same as the tax
attributes of the items limited by the ceiling rule. The tax attributes
of offsetting remedial allocations of income, gain, loss, or deduction
to the contributing partner are determined by reference to the items
limited by the ceiling rule. Thus, for example, if the ceiling rule
limited item is loss from the sale of contributed property, the
offsetting remedial allocation to the contributing partner must be gain
from the sale of that property. If the ceiling rule limited item is
depreciation or other cost recovery from the contributed property, the
offsetting remedial allocation to the contributing partner must be
income of the type produced (directly or indirectly) by that property.
Any partner level attributes are determined at the partner level.
The tax attributes of a remedial allocation at the partner level are
determined by treating the remedial allocation as if it were related to
the same activity, investment, or business as the item limited by the
ceiling rule. For instance, a remedial allocation of depreciation to a
noncontributing partner will not be subject to section 469 (passive
activity loss) limitations if the noncontributing partner materially
participates in the activity in which the contributed property is used.
However, the offsetting remedial allocation of income to the
contributing partner will be treated as income from a passive activity
if the contributing partner does not materially participate in the
activity in which the contributed property is used. See section 469.
Several comments requested that the regulations clarify the effect
of remedial allocations on other tax computations, such as the
partnership's basis in the section 704(c) property to which the
allocation relates and the basis of the partner's partnership interest.
The final regulations clarify that remedial allocations have the same
effect on a partner's tax liability as other tax items actually
recognized by the partnership and have the same effect on the adjusted
tax basis of the partner's partnership interest.
The final regulations also clarify that, because remedial
allocations to noncontributing partners and offsetting remedial
allocations to the contributing partner net to zero at the partnership
level, remedial allocations do not affect the partnership's computation
of its taxable income under section 703. Remedial allocations also do
not affect the partnership's adjusted tax basis in partnership property
(and, consequently, do not affect the aggregate amount of depreciation
recapture income recognized by the partnership on the sale of the
property).
Some comments requested that the final regulations address the
allocation of gain from section 704(c) property that is treated as
ordinary income under sections 1245 or 1250 (depreciation recapture).
One comment suggested that the regulations require partnerships to
allocate depreciation recapture from section 704(c) property based on
the partners' relative shares of depreciation or amortization from the
property, rather than on their shares of gain or loss from the
property. See Secs. 1.1245-1(e)(2) and 1.1250-1(f).
The IRS and Treasury do not believe this issue is appropriately
addressed in regulations issued under section 704(c); however, this
issue is under review and consideration is being given to amending the
regulations under sections 1245 and 1250 to incorporate the rule
suggested by these comments. Additional comments on the proper
allocation of depreciation recapture income by a partnership, both
inside and outside of the section 704(c) context, are welcomed.
The temporary and proposed regulations provide that the IRS will
not require a partnership to use the remedial allocation method
described in Sec. 1.704-3T(d). In response to a comment, the final
regulations clarify that the IRS may not force a partnership to use any
other method involving the creation of notional tax items.
Several comments requested that the final regulations clarify the
interaction between the remedial allocation method and other Code
provisions, notably sections 743, 752, and 754. The IRS and Treasury
have determined that these issues would be better addressed in other
guidance. To give the IRS and Treasury flexibility in addressing these
issues in the future, the final regulations provide that the
Commissioner may, by published guidance, prescribe adjustments to the
remedial allocation method as necessary or appropriate. This guidance
may, for example, prescribe adjustments to the remedial allocation
method to prevent the duplication or omission of items of income or
deduction or to reflect more clearly the partners' income or the income
of a transferee of a partner.
Securities Aggregation
The frequency of capital account restatements under Sec. 1.704-
1(b)(2)(iv)(f) and the number of partnership assets may make it
impractical for certain securities partnerships to make reverse section
704(c) allocations on an asset-by-asset basis. Therefore, the temporary
and proposed regulations permit certain securities partnerships to
aggregate gains and losses from securities or similar instruments when
making reverse section 704(c) allocations. The temporary and proposed
regulations define a securities partnership as one that: (1) is
diversified as defined in section 851(b)(4), (2) has at least 90
percent of its non-cash assets in stock, securities, commodities,
options, warrants, futures, or similar investments that are readily
tradeable on an established securities market, (3) either is registered
as a management company with the Securities and Exchange Commission
under the Investment Company Act of 1940, as amended (15 U.S.C. 80a)
(the 1940 Act), or does not have 50 percent or more of its capital
interests held at any time during the current partnership year by five
or fewer unrelated persons, and (4) makes all of its allocations in
proportion to the partners' relative book capital accounts (except for
reasonable special allocations to a partner that provides management
services).
The IRS and Treasury requested and received comments suggesting
other definitions of securities partnerships. After considering these
comments, the IRS and Treasury have determined that a more flexible
definition of securities partnership should be adopted. Accordingly,
under the final regulations, a securities partnership is a partnership
that is either a management company or an investment partnership, and
that makes all of its book allocations in proportion to the partners'
relative book capital accounts (except for reasonable special
allocations to a partner providing management services or investment
advisory services). The final regulations define a management company
as a partnership that is registered as a management company under the
1940 Act. The final regulations define an investment partnership as a
partnership that, on the date of each capital account restatement,
holds qualified financial assets constituting at least 90 percent of
the fair market value of its non-cash assets and that reasonably
expects, as of the end of the first taxable year in which the
partnership adopts an aggregate approach for reverse section 704(c)
allocations, to make revaluations of its qualified financial assets at
least annually.
Some comments suggested that the regulations allow a securities
partnership to aggregate gains and losses from all of its assets. The
IRS and Treasury believe that it is not generally appropriate to allow
a partnership to aggregate gains and losses from financial assets with
gains and losses from other types of assets. The IRS and Treasury also
believe that aggregation should generally be limited to financial
assets that are easily valued.
Nevertheless, the IRS and Treasury recognize that some financial
assets that are not readily tradeable on an established securities
market may be easily valued. These financial assets are included in
Sec. 1.1092(d)-1 (defining actively traded property for purposes of the
straddle rules). Accordingly, the final regulations permit securities
partnerships to aggregate gains and losses from qualified financial
assets, defined as any personal property (including stock) that is
actively traded as defined in Sec. 1.1092(d)-1, even if it is not
readily tradeable on an established securities market.
There is less reason to limit aggregation to easily valued assets
when the partnership is registered as a management company under the
1940 Act, because a management company's valuation of its assets is
closely regulated by the Securities and Exchange Commission.
Accordingly, the final regulations allow partnerships registered as
management companies to aggregate gains and losses from stock,
evidences of indebtedness, notional principal contracts, derivative
financial instruments, options, forward or futures contracts, short
positions, and similar financial instruments, whether or not actively
traded.
In response to comments, the final regulations also clarify the
treatment of tiered partnerships. Under the final regulations, a
partnership interest is not a qualified financial asset. However, if a
partnership (upper-tier partnership) holds an interest in a securities
partnership (lower-tier partnership), the upper-tier partnership must
treat its proportionate share of the lower-tier partnership's assets as
assets of the upper-tier partnership in determining whether the upper-
tier partnership qualifies as an investment partnership. The final
regulations also provide that, if the upper-tier partnership adopts an
aggregate approach under the special rule for securities partnerships,
the upper-tier partnership must aggregate the gains and losses from its
directly held qualified financial assets with its distributive share of
the gains and losses from the qualified financial assets of the lower-
tier partnership.
The temporary and proposed regulations require that a securities
partnership aggregate its gains separately from its losses. In response
to comments, this requirement has been eliminated in the final
regulations. Under the final regulations, partnerships may net book
gains with book losses and may also net tax gains with tax losses when
making reverse section 704(c) allocations so long as the partnership's
aggregate approach is reasonable and does not violate the anti-abuse
rule set forth in Sec. 1.704-3(a)(10). This rule accords more with the
overall flexibility of the section 704(c) regulations than does an
outright prohibition of netting.
Two examples of aggregate approaches have been added to the
regulations for purposes of illustrating the operation of the
aggregation rules. Other aggregate approaches were suggested. Although
those approaches may be reasonable in appropriate situations, they are
not specifically described in the final regulations because they appear
to be less common than those aggregate approaches that are described in
the regulations.
Under the final regulations, the character and other tax attributes
of gain or loss allocated to the partners must: (1) preserve the tax
attributes of each item of gain or loss realized by the partnership;
(2) be determined under an approach that is consistently applied; and
(3) not be determined with a view to reducing substantially the present
value of the partners' aggregate tax liability.
In response to a comment, the IRS and Treasury have added in the
final regulations a transitional rule that allows securities
partnerships to use any reasonable approach to coordinate revaluations
occurring on or after the effective date of these regulations with
revaluations occurring before the effective date of these regulations.
This provision allows securities partnerships to net book gains and
book losses from revaluations occurring before the effective date of
these regulations with book gains and book losses from revaluations
occurring on or after the effective date of these regulations in making
allocations under these regulations.
The IRS and Treasury recognize that a partnership may, at some
point, no longer qualify as a securities partnership. The final
regulations make it clear that a securities partnership that adopts an
aggregate approach and subsequently fails to qualify as a securities
partnership is not required to disaggregate the book gain or book loss
from qualified asset revaluations before the date of disqualification
when making reverse section 704(c) allocations on or after the date of
disqualification. Additional guidance relating to this issue may be
issued in the future. The final regulations authorize the Commissioner
to permit, by published guidance or by letter ruling, aggregation of
gain and loss from qualified financial assets by partnerships not
qualifying as securities partnerships. The IRS and Treasury welcome
comments on whether and under what circumstances waivers of the
qualification requirements should be granted.
Aggregation of Section 704(c) and Reverse Section 704(c)
Allocations
Several comments requested that the final regulations allow
partnerships that restate capital accounts pursuant to Sec. 1.704-
1(b)(2)(iv)(f) to aggregate their built-in gains and losses from
contributed property with their built-in gains and losses from capital
account restatements. Because this type of aggregation could lead to
substantial distortions in the character and timing of the income or
loss recognized by contributing partners, the final regulations do not
specifically authorize this type of aggregation. The IRS and Treasury
recognize, however, that there may be instances in which the likelihood
of character and timing distortions is minimal and the burden of making
section 704(c) allocations separate from reverse section 704(c)
allocations is great. Accordingly, the final regulations authorize the
Commissioner to permit, by letter ruling or in published guidance,
aggregation of section 704(c) gains and losses with reverse section
704(c) gains and losses.
In response to another comment, the final regulations also
authorize the Commissioner to permit, by letter ruling or in published
guidance, aggregation of section 704(c) gains and losses from
properties other than those specifically authorized in the regulations
or from properties contributed by more than one partner.
Effective date
The provisions added by this Treasury decision apply to property
contributed to a partnership and to restatements pursuant to
Sec. 1.704-1(b)(2)(iv)(f) on or after December 21, 1993. However,
taxpayers may rely on the provisions of Sec. 1.704-3T when making
allocations with respect to properties contributed to a partnership and
to restatements pursuant to Sec. 1.704-1(b)(2)(iv)(f) on or after
December 21, 1993 and before December 28, 1994.
General tax principles continue to apply to all transactions
involving section 704(c) entered into before and after the effective
date of the regulations under section 704(c). The IRS and Treasury are
aware of certain transactions entered into after the proposed section
704(c) regulations were issued under Sec. 1.704-3, but before the
regulations were finalized, that were similar to the anti-abuse
examples contained in the proposed regulations and that would violate
the anti-abuse rule contained in the final section 704(c) regulations
under Sec. 1.704-3(a)(10) but for the effective date of those
regulations. The IRS and Treasury believe that the validity of these
transactions is subject to challenge under general tax principles and
will apply these principles in reviewing such transactions.
Special Analyses
It has been determined that this Treasury decision is not a
significant regulatory action as defined in EO 12866. Therefore, a
regulatory assessment is not required. It also has been determined that
section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5)
and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do not apply to
these regulations, and, therefore, a Regulatory Flexibility Analysis is
not required. Pursuant to section 7805(f) of the Internal Revenue Code,
the notice of proposed rulemaking preceding these regulations was
submitted to the Small Business Administration for comment on its
impact on small business.
Drafting Information
The principal author of these final regulations is Deborah
Harrington of the Office of the Assistant Chief Counsel (Passthroughs
and Special Industries). However, other personnel from the IRS and
Treasury participated in their development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR part 1 is amended as follows:
PART 1--INCOME TAXES
Paragraph 1. The authority citation for part 1 continues to read as
follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.704-3 also issued under 26 U.S.C. 704(c). * * *
Sec. 1.704 [Amended]
Par. 2. Section 1.704-1 is amended as follows:
1. Paragraph (b)(1)(vi) is amended by removing the reference
``Sec. 1.704-3T(d)(2)'' and adding ``Sec. 1.704-3(d)(2)'' in its place.
2. Paragraph (b)(2)(iv)(d)(3) is amended by removing the reference
``Sec. 1.704-3T(d)(2)'' and adding ``Sec. 1.704-3(d)(2)'' in its place.
3. Paragraph (c) is amended by removing the reference ``See
Secs. 1.704-3 and 1.704-3T'' and adding ``See Sec. 1.704-3'' in its
place.
* * * * *
Par. 3. Section 1.704-3 is amended as follows:
1. Paragraph (a)(1) is amended by removing the reference
``Sec. 1.704-3T(d)'' and adding ``Sec. 1.704-3(d)'' in its place.
2. Paragraph (a)(3)(i) is amended by removing the reference
``Sec. 1.704-3T(d)(2)'' and adding ``Sec. 1.704-3(d)(2)'' in its place.
3. Paragraph (d) is revised.
4. Paragraph (e)(2)(iii) is revised.
5. Paragraphs (e)(2)(iv) and (e)(2)(v) are removed.
6. Paragraph (e)(3) is revised and paragraph (e)(4) is added.
7. The additions and revisions read as follows:
Sec. 1.704-3 Contributed property.
* * * * *
(d) Remedial allocation method--(1) In general. A partnership may
adopt the remedial allocation method described in this paragraph to
eliminate distortions caused by the ceiling rule. A partnership
adopting the remedial allocation method eliminates those distortions by
creating remedial items and allocating those items to its partners.
Under the remedial allocation method, the partnership first determines
the amount of book items under paragraph (d)(2) of this section and the
partners' distributive shares of these items under section 704(b). The
partnership then allocates the corresponding tax items recognized by
the partnership, if any, using the traditional method described in
paragraph (b)(1) of this section. If the ceiling rule (as defined in
paragraph (b)(1) of this section) causes the book allocation of an item
to a noncontributing partner to differ from the tax allocation of the
same item to the noncontributing partner, the partnership creates a
remedial item of income, gain, loss, or deduction equal to the full
amount of the difference and allocates it to the noncontributing
partner. The partnership simultaneously creates an offsetting remedial
item in an identical amount and allocates it to the contributing
partner.
(2) Determining the amount of book items. Under the remedial
allocation method, a partnership determines the amount of book items
attributable to contributed property in the following manner rather
than under the rules of Sec. 1.704-1(b)(2)(iv)(g)(3). The portion of
the partnership's book basis in the property equal to the adjusted tax
basis in the property at the time of contribution is recovered in the
same manner as the adjusted tax basis in the property is recovered
(generally, over the property's remaining recovery period under section
168(i)(7) or other applicable Internal Revenue Code section). The
remainder of the partnership's book basis in the property (the amount
by which book basis exceeds adjusted tax basis) is recovered using any
recovery period and depreciation (or other cost recovery) method
(including first-year conventions) available to the partnership for
newly purchased property (of the same type as the contributed property)
that is placed in service at the time of contribution.
(3) Type. Remedial allocations of income, gain, loss, or deduction
to the noncontributing partner have the same tax attributes as the tax
item limited by the ceiling rule. The tax attributes of offsetting
remedial allocations of income, gain, loss, or deduction to the
contributing partner are determined by reference to the item limited by
the ceiling rule. Thus, for example, if the ceiling rule limited item
is loss from the sale of contributed property, the offsetting remedial
allocation to the contributing partner must be gain from the sale of
that property. Conversely, if the ceiling rule limited item is gain
from the sale of contributed property, the offsetting remedial
allocation to the contributing partner must be loss from the sale of
that property. If the ceiling rule limited item is depreciation or
other cost recovery from the contributed property, the offsetting
remedial allocation to the contributing partner must be income of the
type produced (directly or indirectly) by that property. Any partner
level tax attributes are determined at the partner level. For example,
if the ceiling rule limited item is depreciation from property used in
a rental activity, the remedial allocation to the noncontributing
partner is depreciation from property used in a rental activity and the
offsetting remedial allocation to the contributing partner is ordinary
income from that rental activity. Each partner then applies section 469
to the allocations as appropriate.
(4) Effect of remedial items--(i) Effect on partnership. Remedial
items do not affect the partnership's computation of its taxable income
under section 703 and do not affect the partnership's adjusted tax
basis in partnership property.
(ii) Effect on partners. Remedial items are notional tax items
created by the partnership solely for tax purposes and do not affect
the partners' book capital accounts. Remedial items have the same
effect as actual tax items on a partner's tax liability and on the
partner's adjusted tax basis in the partnership interest.
(5) Limitations on use of methods involving remedial allocations--
(i) Limitation on taxpayers. In the absence of published guidance, the
remedial allocation method described in this paragraph (d) is the only
reasonable section 704(c) method permitting the creation of notional
tax items.
(ii) Limitation on Internal Revenue Service. In exercising its
authority under paragraph (a)(10) of this section to make adjustments
if a partnership's allocation method is not reasonable, the Internal
Revenue Service will not require a partnership to use the remedial
allocation method described in this paragraph (d) or any other method
involving the creation of notional tax items.
(6) Adjustments to application of method. The Commissioner may, by
published guidance, prescribe adjustments to the remedial allocation
method under this paragraph (d) as necessary or appropriate. This
guidance may, for example, prescribe adjustments to the remedial
allocation method to prevent the duplication or omission of items of
income or deduction or to reflect more clearly the partners' income or
the income of a transferee of a partner.
(7) Examples. The following examples illustrate the principles of
this paragraph (d).
Example 1. Remedial allocation method--(i) Facts. On January 1,
L and M form partnership LM and agree that each will be allocated a
50 percent share of all partnership items. The partnership agreement
provides that LM will make allocations under section 704(c) using
the remedial allocation method under this paragraph (d) and that the
straight-line method will be used to recover excess book basis. L
contributes depreciable property with an adjusted tax basis of
$4,000 and a fair market value of $10,000. The property is
depreciated using the straight-line method with a 10-year recovery
period and has 4 years remaining on its recovery period. M
contributes $10,000, which the partnership uses to purchase land.
Except for the depreciation deductions, LM's expenses equal its
income in each year of the 10 years commencing with the year the
partnership is formed.
(ii) Years 1 through 4. Under the remedial allocation method of
this paragraph (d), LM has book depreciation for each of its first 4
years of $1,600 [$1,000 ($4,000 adjusted tax basis divided by the 4-
year remaining recovery period) plus $600 ($6,000 excess of book
value over tax basis, divided by the new 10-year recovery period)].
(For the purpose of simplifying the example, the partnership's book
depreciation is determined without regard to any first-year
depreciation conventions.) Under the partnership agreement, L and M
are each allocated 50 percent ($800) of the book depreciation. M is
allocated $800 of tax depreciation and L is allocated the remaining
$200 of tax depreciation ($1,000-$800). See paragraph (d)(1) of this
section. No remedial allocations are made because the ceiling rule
does not result in a book allocation of depreciation to M different
from the tax allocation. The allocations result in capital accounts
at the end of LM's first 4 years as follows:
------------------------------------------------------------------------
L M
-------------------------------------------
Book Tax Book Tax
------------------------------------------------------------------------
Initial contribution........ $10,000 $4,000 $10,000 $10,000
Depreciation................ <3,200> <800> <3,200> <3,200>
-------------------------------------------
$6,800 $3,200 $6,800 $6,800
------------------------------------------------------------------------
(iii) Subsequent Years. (A) For each of years 5 through 10, LM
has $600 of book depreciation ($6,000 excess of initial book value
over adjusted tax basis divided by the 10-year recovery period that
commended in year 1), but no tax depreciation. Under the partnership
agreement, the $600 of book depreciation is allocated equally to L
and M. Because of the application of the ceiling rule in year 5, M
would be allotted $300 of book depreciation, but no tax
depreciation. Thus, at the end of LM's fifth year L's and M's book
and tax capital accounts would be as follows:
----------------------------------------------------------------------------------------------------------------
L M
---------------------------------------------------------------------------------------
Book Tax Book Tax
----------------------------------------------------------------------------------------------------------------
End of year 4........... $6,800 $3,200 $6,800 $6,800
Depreciation............ <300> ....................... <300> .......................
---------------------------------------------------------------------------------------
$6,500 $3,200 $6,500 $6,800
----------------------------------------------------------------------------------------------------------------
(B) Because the ceiling rule would cause an annual disparity of
$300 between M's allocations of book and tax depreciation, LM must
make remedial allocations of $300 of tax depreciation deductions to
M under the remedial allocation method for each of years 5 through
10. LM must also make an offsetting remedial allocation to L of $300
of taxable income, which must be of the same type as income produced
by the property. At the end of year 5, LM's capital accounts are as
follows:
------------------------------------------------------------------------
L M
-------------------------------------------
Book Tax Book Tax
------------------------------------------------------------------------
End of year 4............... $6,800 $3,200 $6,800 $6,800
Depreciation................ <300> ......... <300> .........
Remedial allocations........ ......... 300 ......... <300>
-------------------------------------------
$6,500 $3,500 $6,500 $6,500
------------------------------------------------------------------------
(C) At the end of year 10, LM's capital accounts are as follows:
------------------------------------------------------------------------
L M
-------------------------------------------
Book Tax Book Tax
------------------------------------------------------------------------
End of year 5............... $6,500 $3,500 $6,500 $6,500
Depreciation................ <1,500> ......... <1,500> .........
Remedial allocations........ ......... <1,500> ......... <1,500>
-------------------------------------------
$5,000 $5,000 $5,000 $5,000
------------------------------------------------------------------------
Example 2. Remedial allocations on sale--(i) Facts. N and P form
partnership NP and agree that each will be allocated a 50 percent
share of all partnership items. The partnership agreement provides
that NP will make allocations under section 704(c) using the
remedial allocation method under this paragraph (d). N contributes
Blackacre (land) with an adjusted tax basis of $4,000 and a fair
market value of $10,000. Because N has a built-in gain of $6,000,
Blackacre is section 704(c) property. P contributes Whiteacre (land)
with an adjusted tax basis and fair market value of $10,000. At the
end of NP's first year, NP sells Blackacre to Q for $9,000 and
recognizes a capital gain of $5,000 ($9,000 amount realized less
$4,000 adjusted tax basis) and a book loss of $1,000 ($9,000 amount
realized less $10,000 book basis). NP has no other items of income,
gain, loss, or deduction. If the ceiling rule were applied, N would
be allocated the entire $5,000 of tax gain and N and P would each be
allocated $500 of book loss. Thus, at the end of NP's first year N's
and P's book and tax capital accounts would be as follows:
------------------------------------------------------------------------
N P
-------------------------------------------
Book Tax Book Tax
------------------------------------------------------------------------
Initial contribution........ $10,000 $4,000 $10,000 $10,000
Sale of Blackacre........... <500> 5,000 <500> .........
-------------------------------------------
$9,500 $9,000 $9,500 $10,000
------------------------------------------------------------------------
(ii) Remedial allocation. Because the ceiling rule would cause a
disparity of $500 between P's allocation of book and tax loss, NP
must make a remedial allocation of $500 of capital loss to P and an
offsetting remedial allocation to N of an additional $500 of capital
gain. These allocations result in capital accounts at the end of
NP's first year as follows:
------------------------------------------------------------------------
N P
-------------------------------------------
Book Tax Book Tax
------------------------------------------------------------------------
Initial contribution........ $10,000 $4,000 $10,000 $10,000
Sale of Blackacre........... <500> 5,000 <500> .........
Remedial allocations........ ......... 500 ......... <500>
-------------------------------------------
$9,500 $9,500 $9,500 $9,500
------------------------------------------------------------------------
Example 3. Remedial allocation where built-in gain property sold
for book and tax loss--(i) Facts. The facts are the same as in
Example 2, except that at the end of NP's first year, NP sells
Blackacre to Q for $3,000 and recognizes a capital loss of $1,000
($3,000 amount realized less $4,000 adjusted tax basis) and a book
loss of $7,000 ($3,000 amount realized less $10,000 book basis). If
the ceiling rule were applied, P would be allocated the entire
$1,000 of tax loss and N and P would each be allocated $3,500 of
book loss. Thus, at the end of NP's first year, N's and P's book and
tax capital accounts would be as follows:
------------------------------------------------------------------------
N P
-------------------------------------------
Book Tax Book Tax
------------------------------------------------------------------------
Initial contribution........ $10,000 $4,000 $10,000 $10,000
Sale of Blackacre........... <3,500> 0 <3,500> <1,000>
-------------------------------------------
$6,500 $4,000 $6,500 $9,000
------------------------------------------------------------------------
(ii) Remedial allocation. Because the ceiling rule would cause a
disparity of $2,500 between P's allocation of book and tax loss on
the sale of Blackacre, NP must make a remedial allocation of $2,500
of capital loss to P and an offsetting remedial allocation to N of
$2,500 of capital gain. These allocations result in capital accounts
at the end of NP's first year as follows:
------------------------------------------------------------------------
N P
-------------------------------------------
Book Tax Book Tax
------------------------------------------------------------------------
Initial contribution........ $10,000 $4,000 $10,000 $10,000
Sale of Blackacre........... <3,500> 0 <3,500> <1,000>
Remedial Allocations........ ......... 2,500 ......... <2,500>
-------------------------------------------
$6,500 $6,500 $6,500 $6,500
------------------------------------------------------------------------
(iii) Subsequent Years. (A) For each of years 5 through 10, LM has
$600 of book depreciation ($6,000 excess of initial book value over
adjusted tax basis divided by the 10-year recovery period that
commenced in year 1), but no tax depreciation. Under the partnership
agreement, the $600 of book depreciation is allocated equally to L and
M. Because of the application of the ceiling rule in year 5, M would be
allocated $300 of book depreciation, but no tax depreciation. Thus, at
the end of LM's fifth year L's and M's book and tax capital accounts
would be as follows:
(e) * * *
(2) * * *
(iii) Inventory. For partnerships that do not use a specific
identification method of accounting, each item of inventory, other than
qualified financial assets (as defined in paragraph (e)(3)(ii) of this
section).
(3) Special aggregation rule for securities partnerships--(i)
General rule. For purposes of making reverse section 704(c)
allocations, a securities partnership may aggregate gains and losses
from qualified financial assets using any reasonable approach that is
consistent with the purpose of section 704(c). Notwithstanding
paragraphs (a)(2) and (a)(6)(i) of this section, once a partnership
adopts an aggregate approach, that partnership must apply the same
aggregate approach to all of its qualified financial assets for all
taxable years in which the partnership qualifies as a securities
partnership. Paragraphs (e)(3)(iv) and (e)(3)(v) of this section
describe approaches for aggregating reverse section 704(c) gains and
losses that are generally reasonable. Other approaches may be
reasonable in appropriate circumstances. See, however, paragraph
(a)(10) of this section, which describes the circumstances under which
section 704(c) methods, including the aggregate approaches described in
this paragraph (e)(3), are not reasonable. A partnership using an
aggregate approach must separately account for any built-in gain or
loss from contributed property.
(ii) Qualified financial assets--(A) In general. A qualified
financial asset is any personal property (including stock) that is
actively traded. Actively traded means actively traded as defined in
Sec. 1.1092(d)-1 (defining actively traded property for purposes of the
straddle rules).
(B) Management companies. For a management company, qualified
financial assets also include the following, even if not actively
traded: shares of stock in a corporation; notes, bonds, debentures, or
other evidences of indebtedness; interest rate, currency, or equity
notional principal contracts; evidences of an interest in, or
derivative financial instruments in, any security, currency, or
commodity, including any option, forward or futures contract, or short
position; or any similar financial instrument.
(C) Partnership interests. An interest in a partnership is not a
qualified financial asset for purposes of this paragraph (e)(3)(ii).
However, for purposes of this paragraph (e)(3), a partnership (upper-
tier partnership) that holds an interest in a securities partnership
(lower-tier partnership) must take into account the lower-tier
partnership's assets and qualified financial assets as follows:
(1) In determining whether the upper-tier partnership qualifies as
an investment partnership, the upper-tier partnership must treat its
proportionate share of the lower-tier securities partnership's assets
as assets of the upper-tier partnership; and
(2) If the upper-tier partnership adopts an aggregate approach
under this paragraph (e)(3), the upper-tier partnership must aggregate
the gains and losses from its directly held qualified financial assets
with its distributive share of the gains and losses from the qualified
financial assets of the lower-tier securities partnership.
(iii) Securities partnership--(A) In general. A partnership is a
securities partnership if the partnership is either a management
company or an investment partnership, and the partnership makes all of
its book allocations in proportion to the partners' relative book
capital accounts (except for reasonable special allocations to a
partner that provides management services or investment advisory
services to the partnership).
(B) Definitions--(1) Management company. A partnership is a
management company if it is registered with the Securities and Exchange
Commission as a management company under the Investment Company Act of
1940, as amended (15 U.S.C. 80a).
(2) Investment partnership. A partnership is an investment
partnership if:
(i) On the date of each capital account restatement, the
partnership holds qualified financial assets that constitute at least
90 percent of the fair market value of the partnership's non-cash
assets; and
(ii) The partnership reasonably expects, as of the end of the first
taxable year in which the partnership adopts an aggregate approach
under this paragraph (e)(3), to make revaluations at least annually.
(iv) Partial netting approach. This paragraph (e)(3)(iv) describes
the partial netting approach of making reverse section 704(c)
allocations. See Example 1 of paragraph (e)(3)(ix) of this section for
an illustration of the partial netting approach. To use the partial
netting approach, the partnership must establish appropriate accounts
for each partner for the purpose of taking into account each partner's
share of the book gains and losses and determining each partner's share
of the tax gains and losses. Under the partial netting approach, on the
date of each capital account restatement, the partnership:
(A) Nets its book gains and book losses from qualified financial
assets since the last capital account restatement and allocates the net
amount to its partners;
(B) Separately aggregates all tax gains and all tax losses from
qualified financial assets since the last capital account restatement;
and
(C) Separately allocates the aggregate tax gain and aggregate tax
loss to the partners in a manner that reduces the disparity between the
book capital account balances and the tax capital account balances
(book-tax disparities) of the individual partners.
(v) Full netting approach. This paragraph (e)(3)(v) describes the
full netting approach of making reverse section 704(c) allocations on
an aggregate basis. See Example 2 of paragraph (e)(3)(ix) of this
section for an illustration of the full netting approach. To use the
full netting approach, the partnership must establish appropriate
accounts for each partner for the purpose of taking into account each
partner's share of the book gains and losses and determining each
partner's share of the tax gains and losses. Under the full netting
approach, on the date of each capital account restatement, the
partnership:
(A) Nets its book gains and book losses from qualified financial
assets since the last capital account restatement and allocates the net
amount to its partners;
(B) Nets tax gains and tax losses from qualified financial assets
since the last capital account restatement; and
(C) Allocates the net tax gain (or net tax loss) to the partners in
a manner that reduces the book-tax disparities of the individual
partners.
(vi) Type of tax gain or loss. The character and other tax
attributes of gain or loss allocated to the partners under this
paragraph (e)(3) must:
(A) Preserve the tax attributes of each item of gain or loss
realized by the partnership;
(B) Be determined under an approach that is consistently applied;
and
(C) Not be determined with a view to reducing substantially the
present value of the partners' aggregate tax liability.
(vii) Disqualified securities partnerships. A securities
partnership that adopts an aggregate approach under this paragraph
(e)(3) and subsequently fails to qualify as a securities partnership
must make reverse section 704(c) allocations on an asset-by-asset basis
after the date of disqualification. The partnership, however, is not
required to disaggregate the book gain or book loss from qualified
asset revaluations before the date of disqualification when making
reverse section 704(c) allocations on or after the date of
disqualification.
(viii) Transitional rule for qualified financial assets revalued
after effective date. A securities partnership revaluing its qualified
financial assets pursuant to Sec. 1.704-1(b)(2)(iv)(f) on or after the
effective date of this section may use any reasonable approach to
coordinate with revaluations that occurred prior to the effective date
of this section.
(ix) Examples. The following examples illustrate the principles of
this paragraph (e)(3).
Example 1. Operation of the partial netting approach--(i) Facts.
Two regulated investment companies, X and Y, each contribute
$150,000 in cash to form PRS, a partnership that registers as a
management company. The partnership agreement provides that book
items will be allocated in accordance with the partners' relative
book capital accounts, that book capital accounts will be adjusted
to reflect daily revaluations of property pursuant to Sec. 1.704-
1(b)(2)(iv)(f)(5)(iii), and that reverse section 704(c) allocations
will be made using the partial netting approach described in
paragraph (e)(3)(iv) of this section. X and Y each have an initial
book capital account of $150,000. In addition, the partnership
establishes for each of X and Y a revaluation account with a
beginning balance of $0. On Day 1, PRS buys Stock 1, Stock 2, and
Stock 3 for $100,000 each. On Day 2, Stock 1 increases in value from
$100,000 to $102,000, Stock 2 increases in value from $100,000 to
$105,000, and Stock 3 declines in value from $100,000 to $98,000. At
the end of Day 2, Z, a regulated investment company, joins PRS by
contributing $152,500 in cash for a one-third interest in the
partnership [$152,500 divided by $300,000 (initial values of stock)
+ $5,000 (net gain at end of Day 2)+ $152,500]. PRS uses this cash
to purchase Stock 4. PRS establishes a revaluation account for Z
with a $0 beginning balance. As of the close of Day 3, Stock 1
increases in value from $102,000 to $105,000, and Stocks 2, 3, and 4
decrease in value from $105,000 to $102,000, from $98,000 to
$96,000, and from $152,500 to $151,500, respectively. At the end of
Day 3, PRS sells Stocks 2 and 3.
(ii) Book allocations--Day 2. At the end of Day 2, PRS revalues
the partnership's qualified financial assets and increases X's and
Y's book capital accounts by each partner's 50 percent share of the
$5,000 ($2,000 + $5,000 - $2,000) net increase in the value of the
partnership's assets during Day 2. PRS increases X's and Y's
respective revaluation account balances by $2,500 each to reflect
the amount by which each partner's book capital account increased on
Day 2. Z's capital account is not affected because Z did not join
PRS until the end of Day 2. At the beginning of Day 3, the
partnership's accounts are as follows:
------------------------------------------------------------------------
Stock 1 Stock 2 Stock 3 Stock 4
------------------------------------------------------------------------
Opening Balance............ $100,000 $100,000 $100,000 ..........
Day 2 Adjustment........... 2,000 5,000 (2,000) ..........
--------------------------------------------
Total...................... $102,000 $105,000 $98,000 $152,500
------------------------------------------------------------------------
------------------------------------------------------------------------
X
----------------------------------
Revaluation
Book Tax account
------------------------------------------------------------------------
Opening Balance...................... $150,000 $150,000 0
Day 2 Adjustment..................... 2,500 0 $2,500
----------------------------------
Closing Balance...................... $152,500 $150,000 $2,500
------------------------------------------------------------------------
------------------------------------------------------------------------
Y
----------------------------------
Revaluation
Book Tax account
------------------------------------------------------------------------
Opening Balance...................... $150,000 $150,000 0
Day 2 Adjustment..................... 2,500 0 $2,500
----------------------------------
Closing balance...................... $152,500 $150,000 $2,500
------------------------------------------------------------------------
------------------------------------------------------------------------
Z
----------------------------------
Revaluation
Book Tax account
------------------------------------------------------------------------
Opening Balance...................... ......... ......... ...........
Day 2 Adjustment..................... ......... ......... ...........
Closing Balance...................... $152,500 $152,500 $0
------------------------------------------------------------------------
(iii) Book and tax allocations--Day 3. At the end of Day 3, PRS
decresases the book capital accounts of X, Y, and Z by $1,000 to
reflect each partner's share of the $3,000 ($3,000--$3,000--$2,000--
$1,000) net decrease in the value of the partnership's qualified
financial assets. PRS also reduces each partner's revaluation
account balance by $1,000. Accordingly, X's and Y's revaluation
account balances are reduced to $1,500 each and Z's revaulation
account balance is ($1,000). PRS then separately allocates the tax
gain from the sale of Stock 2 and the loss from the sale of Stock 3.
The $2,000 of tax gain recognized on the sale of Stock 2 ($102,000--
$100,000) is allocated among the partners with positive revaluation
account balances in accordance with the relative balances of those
revaluation accounts. X's and Y's revaluation accounts have equal
positive balances; thus, PRS allocates $1,000 of the gain from the
sale of Stock 2 to X and $1,000 of that gain to Y. PRS allocates
none of the gain from the sale to Z because Z's revaluation account
balance is negative. The $4,000 of tax loss recognized from the sale
of Stock 3 ($96,000--$100,000) is allocated first to the partners
with negative revaluation account balances to the extent of those
balances. Because Z is the only partner with a negative revaluation
account balance, the tax loss is allocated first to Z to the extent
of Z's ($1,000) balance. The remaining $3,000 of tax loss is
allocated among the partners in accordance with their distributive
shares of the loss. Accordingly, PRS allocates $1,000 of tax loss
from the sale of Stock 3 to each of X and Y. PRS also allocates an
additional $1,000 of the tax loss to Z, so that Z's total share of
the tax loss from the sale of Stock 3 is $2,000. PRS then reduces
each partner's revaluation account balance by the amount of any tax
gain allocated to that partner and increases each partner's
revaluation account balance by the amount of any tax loss allocated
to that partner. At the beginning of Day 4, the partnership's
accounts are as follows:
------------------------------------------------------------------------
Stock 1 Stock 2 Stock 3 Stock 4
------------------------------------------------------------------------
Opening Balance......... $100,000 $100,000 $100,000 $152,500
Day 2 Adjustment........ 2,000 5,000 (2,000) ...........
Day 3 Adjustment........ $3,000 (3,000) (2,000) (1,000)
-----------------------------------------------
Total................... $105,000 $102,000 $96,000 $151,500
------------------------------------------------------------------------
------------------------------------------------------------------------
X and Y
--------------------------------------
Revaluation
Book Tax account
------------------------------------------------------------------------
Opening Balance.................. $150,000 $150,000 0
Day 2 Adjustment................. 2,500 0 $2,500
Day 3 Adjustment................. (1,000) 0 ($1,000)
--------------------------------------
Total............................ $151,500 $150,000 $1,500
Gain from Stock 2................ 0 $1,000 (1,000)
Loss from Stock 3................ 0 ($1,000) 1,000
--------------------------------------
Closing Balance.................. $151,500 $150,000 $1,500
------------------------------------------------------------------------
------------------------------------------------------------------------
Z
------------------------------------
Revaluation
Book Tax account
------------------------------------------------------------------------
Opening Balance.................... $151,500 $152,500 0
Day 3 Adjustment................... (1,000) 0 ($1,000)
------------------------------------
Total.............................. $151,500 $152,500 ($1,000)
Gain from Stock 2.................. 0 0 0
Loss from Stock 3.................. 0 (2,000) 2,000
------------------------------------
Closing Balance.................... $151,500 $150,500 $1,000
------------------------------------------------------------------------
Example 2. Operation of the full netting approach--(i) Facts.
The facts are the same as in Example 1, except that the partnership
agreement provides that PRS will make reverse section 704(c)
allocations using the full netting approach described in paragraph
(e)(3)(v) of this section.
(ii) Book allocations--Days 2 and 3. PRS allocates its book
gains and losses in the manner described in paragraphs (ii) and
(iii) of Example 1 (the partial netting approach). Thus, at the end
of Day 2, PRS increases the book capital accounts of X and Y by
$2,500 to reflect the appreciation in the parntership's assets from
the close of Day 1 to the close of Day 2 and records that increase
in the revaluation account created for each partner. At the end of
Day 3, PRS decreases the book capital accounts of X, Y, and Z by
$1,000 to reflect each partner's share of the decline in value of
the partnership's assets from Day 2 to Day 3 and reduces each
partner's revaluation account by a corresponding amount.
(iii) Tax allocations--Day 3. After making the book adjustments
described in the previous paragraph, PRS allocates its net tax gain
(or net tax loss) from its sales of qualified financial assets
during Day 3. To do so, PRS first determines its net tax gain (or
net tax loss) recognized from its sales of qualified financial
assets for the day. There is a $2,000 net tax loss ($2,000 gain from
the sale of Stock 2 less $4,000 loss from the sale of Stock 3) on
the sale of PRS's qualified financial assets. Because Z is the only
partner with a negative revaluation account balance, the
partnership's net tax loss is allocated first to Z to the extent of
Z's ($1,000) revaluation account balance. The remaining net tax loss
is allocated among the partners in accoradnce with their
distributive shares of loss. Thus, PRS allocates $333.33 of the
$2,000 net tax loss to each of X and Y. PRS also allocates an
additional $333.33 of the net tax loss to Z, so that the total net
tax loss allocation to Z is $1,333.33. PRS then increases each
partner's revaluation account balance by the amount of net tax loss
allocated to that partner. At the beginning of Day 4, the
partnership's accounts are as follows:
------------------------------------------------------------------------
Stock 1 Stock 2 Stock 3 Stock 4
------------------------------------------------------------------------
Opening Balance.......... $100,000 $100,000 $100,000 $152,500
Day 2 Adjustment......... 2,000 5,000 (2,000) ..........
Day 3 Adjustment......... 3,000 (3,000) (2,000) ($1,000)
----------------------------------------------
Total.................... $105,000 $102,000 $96,000 $151,500
------------------------------------------------------------------------
------------------------------------------------------------------------
Z and Y
--------------------------------------
Revaluation
Book Tax account
------------------------------------------------------------------------
Opening Balance.................. $150,000 $150,500 0
Day 2 Adjustment................. $2,500 0 $2,500
Day 3 Adjustment................. (1,000) 0 (1,000)
--------------------------------------
Total............................ $151,500 $150,000 $1,500
Net Tax Loss-Stocks 2 & 3........ 0 (333) 333
--------------------------------------
Closing Balance.................. $151,500 $149,667 $1,833
------------------------------------------------------------------------
------------------------------------------------------------------------
Z
------------------------------------
Revaluation
Book Tax account
------------------------------------------------------------------------
Opening Balance.................... $152,500 $152,500 0
Day 3 Adjustment................... (1,000) 0 ($1,000)
------------------------------------
Total.......................... $151,500 $152,500 ($1,000)
Net Tax Loss-Stocks 2 & 3.......... 0 (1,333) 1,333
------------------------------------
Closing Balance.................... $151,500 $151,167 $333
------------------------------------------------------------------------
(4) Aggregation as permitted by the Commissioner. The Commissioner
may, by published guidance or by letter ruling, permit:
(i) Aggregation of properties other than those described in
paragraphs (e)(2) and (e)(3) of this section;
(ii) Partnerships and partners not described in paragraph (e)(3) of
this section to aggregate gain and loss from qualified financial
assets; and
(iii) Aggregation of qualified financial assets for purposes of
making section 704(c) allocations in the same manner as that described
in paragraph (e)(3) of this section.
* * * * *
Sec. 1.704-3T [Removed]
Par. 4. Section 1.704-3T is removed.
Dated: December 13, 1994.
Margaret Milner Richardson,
Commissioner of Internal Revenue.
Approved:
Leslie Samuels,
Assistant Secretary of the Treasury.
[FR Doc. 94-31435 Filed 12-27-94; 8:45 am]
BILLING CODE 4830-01-P
