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Keywords

plaintiffdefendantwillpartnership

plaintiffdefendantpartnership

Related Cases

Yourman v. U.S., 277 F.Supp. 818, 21 A.F.T.R.2d 346, 68-1 USTC P 9135

Facts

The plaintiffs, Miles and Allen Yourman, held a one-third interest in a partnership with William Anderson. The partnership was dissolved in 1955, and assets were distributed non-pro-rata, with Anderson receiving certain unrealized receivables and inventory items, while the plaintiffs received capital assets. The inventory items had been expensed, resulting in a zero basis, and taxes were assessed against the plaintiffs based on the non-pro-rata distribution being a taxable event under 26 U.S.C. § 751.

The partnership was dissolved in 1955 via a non-pro-rata distribution of partnership assets. Certain unrealized receivables and inventory items were distributed to Anderson. Plaintiffs received certain capital assets; principally land.

Issue

Did the non-pro-rata distribution of partnership assets trigger tax consequences under 26 U.S.C. § 751, and should the partnership inventory be considered in determining those consequences?

Plaintiffs contend section 751 does not apply for the reason that language contained in section 751(b)(1)(B) limits the application of the section to a situation where a partnership continues in existence after a distribution to some or all of the partners.

Rule

The court applied the principles of 26 U.S.C. § 751, which governs the treatment of distributions of partnership property as sales or exchanges, particularly focusing on whether the inventory items had appreciated substantially in value.

The rules of Section 751(b), as thus described, are applicable both to liquidating and current distributions.

Analysis

The court found that the inventory items had a fair market value that exceeded 10% of the fair market value of all partnership property, despite having a zero adjusted basis on the books. The court reasoned that the language of section 751 applies to both dissolved and continuing partnerships, and that the distribution should be treated similarly to a sale by the partnership, thus triggering tax consequences.

There would seem to be no logical reason for differentiating between an ‘actual appreciation’ and a ‘bookkeeping appreciation’ caused by having expensed the inventory for tax purposes.

Conclusion

The court ruled in favor of the defendant, concluding that the non-pro-rata distribution of partnership assets constituted a taxable event under 26 U.S.C. § 751.

Judgment shall be for defendant.

Who won?

Defendant (United States) prevailed because the court determined that the non-pro-rata distribution of partnership assets triggered tax consequences under section 751, as the partnership inventory had appreciated substantially.

Judgment for defendant.

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Citron v. C. I. R., 97 T.C. No. 12, 97 T.C. 200, Tax Ct. Rep. (CCH) 47,513, Tax Ct. Rep. Dec. (P-H) 97.12

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