Daily Tax Update - April 1, 2005

IRS ISSUES INTERIM RULES FOR MANDATORY BASIS ADJUSTMENTS UNDER SECTIONS 734 AND 743:
Today, the IRS issued Notice 2005-32, which provides interim reporting requirements with respect to the mandatory basis adjustments required by sections 734 and 743, as amended by the American Jobs Creation Act of 2004 ("AJCA"). The Notice also provides interim rules for partnerships electing to be treated as "electing investment partnerships" under section 743, as amended by the AJCA.

  • In the absence of a section 754 election, section 734 requires a partnership to reduce its basis in partnership property upon a distribution of partnership property after October 22, 2004 if there is a "substantial basis reduction." A "substantial basis reduction" exists if a downward basis adjustment of more than $250,000 would be made to the basis of partnership property if a section 754 election were in effect at the time of the distribution. In the absence of a section 754 election, section 743 requires a partnership to reduce the basis of partnership property upon a transfer after October 22, 2004 of an interest in the partnership, if, at the time of the relevant transfer, the partnership has a "substantial built-in loss." A partnership has a "substantial built-in loss" if the partnership’s adjusted basis in the partnership’s property exceeds by more than $250,000 the fair market value of the property. This mandatory basis adjustment provision under section 743 does not apply to "electing investment partnerships." Instead, a special loss disallowance rule applies to partners in "electing investment partnerships."
  • For additional information, contact Mark J. Silverman via email or Aaron P. Nocjar via email.

IRS ISSUES WINTER STATISTICS OF INCOME BULLETIN:
On March 31, the IRS released the Winter 2004-2005 issue of the Statistics of Income Bulletin. The Bulletin is a quarterly compilation of information on various topics from Federal tax returns and other documents. The Bulletin includes historical data on income, deductions, and tax reported on returns filed by individuals, corporations, and unincorporated businesses, with selected data presented for estates. Statistics are also presented on tax collections, including excise taxes by type, and refunds for recent years.

INTERNAL REVENUE SERVICE - CIRCULAR 230 DISCLOSURE:
As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement addressed herein.

STEPTOE & JOHNSON LLP - TAX PRACTICE
Steptoe & Johnson LLP has one of the largest and most diverse law firm tax practices in the country. The practice covers the entire spectrum of federal taxation, including representation of businesses before the Congress, Treasury and the national office of the IRS; transactional planning for domestic and multinational corporations; complex audit and controversy work for corporations and other business interests contesting IRS adjustments; litigation before the Tax Court, Court of Federal Claims, district courts, courts of appeals and the Supreme Court. The firm's tax practice also encompasses all aspects of employee benefits (ERISA), executive compensation, tax-exempt organizations and charitable giving.  Steptoe has an extensive state and local tax practice, representing an array of business clients on complex sales and use tax, corporate income tax and property tax matters, both advising those clients and handling audits, administrative appeals, and litigation for them.  Read  more information on Steptoe's tax practice