No more. At long last, today we finally finish our foray through subchapter K, with a look at some of the more convoluted rules of the convoluted-even-in-their-basic-form partnership tax laws: the mixing bowl rules.
Bowls, Part II
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While a challenge to understand, the mixing bowl rules serve a straightforward purpose: to prevent a partner who holds appreciated or depreciated property from transferring the property to a partnership and spreading the gain or loss inherent in the property among other the other partners.
Say partner A contributes property with a basis of $100 and a fair market value (FMV) of $1,000 to a partnership for a 50% interest. At the same time, partner B contributes cash of $1,000 for the other 50% interest.
When the contributed property is depreciable, the rules get a little more complicated and a lot less intuitive, but ultimately serve the same purpose: to prevent the unfair spread of tax gain, loss, or in this case, depreciation deductions. In furtherance of this goal, generally, the first dollars of depreciation are allocated to the non-contributing partner.
To rehash the general rule of Section 704(c) one final time, when a partner contributes appreciated property to a partnership, allocations of tax items generated by the contributed property must take into account the difference between the basis and fair market value (FMV) of the property at the time of contribution under Section 704(c)(1)(A). As illustrated in our example above, when a partnership sells that property, the partnership generally must allocate tax gain equal to the excess of the book value of the property over its basis (built-in gain) to the contributing partner. After the Section 704(c)(1)(A) allocation, book and tax gain are allocated under the partnership agreement.
Because the hypothetical sale is specifically made to the distributee partner, if that partner owns more than 50% of either the capital or profits interest in the partnership (either directly or indirectly), no deduction for any loss will be allowed under Section 707.
The character of Section 704(c)(1)(B) gain or loss is also based on the hypothetical transaction. Thus, if the distributee partner owns more than 50% of either the capital or profits interest in the partnership and the distributed property would not be a capital asset in his hands, any gain will be ordinary under Section 707.
There is a second type of "mixing bowl" scenario that requires gain recognition to a partner who contributes appreciated property to a partnership; only in this scenario, instead of the contributed property being distributed to another partner, the original contributing partner receives a distribution of property other than the property he contributed to the partnership.
Example: continuing the example above, the $100 of gain recognized by A increases his outside basis from $900 to $1,000 immediately before the distribution to him of Property Y. As a result, A takes Property Y with a basis of $700 (lesser of $700 basis to partnership and A's outside basis of $1,000) and reduces his outside basis from $1,000 to $300.
I earned my J.D. and LL.M. in Taxation from Temple University School of Law in Philadelphia, PA. While at law school, I interned in the federal estate and gift tax attorney division of the IRS, and participated in the review and audit of federal estate tax returns.
I hate lists of awards but do have a few that I'm particularly proud of, including the Philadelphia Business Journal \"40 under 40\" and being named one of the Global Tax 50 by the International Tax Review for my \"tireless and passionate tax reporting.\"
I have been a CPA for over 30 years focusing on taxation. I have extensive experience with partnerships, real estate and high net worth individuals. \n\nMy ideology can be summarized at least metaphorically by this quote:\n\n\"I have a total irreverence for anything connected with society except that which makes the roads safer, the beer stronger, the food cheaper and the old men and old women warmer in the winter and happier in the summer.\" - Brendan Behan. Nobody I work for has any responsibility for what goes into this blog and you should make no inference that they approve of it or even have read it.
"They threw a 10-yard out with five seconds left to give themselves a chance and make a 54-yard field goal, and at that time I was really disappointed with myself in particular, not having the correct defense to keep them from going out of bounds," Shahanan said in a recent interview. "Because if we keep them in bounds, they don't even have a chance to attempt that field goal. So I think you always go back and look at yourself, and say, 'OK, what could we have done differently to win those games?'"
Consistently strong offenses do usually make it to at least one Super Bowl. Since 1989, there have been 12 offenses that ranked in the top five in DVOA for at least three consecutive seasons. Nine of those teams appeared in at least one Super Bowl, with seven winning a championship. The 2009-2013 Patriots and 2012-2014 Broncos did not win a Super Bowl at their dominant peaks, but both won one in their very next seasons with offenses ranked out of the top five. So a lot of the same pieces were still present, though Denver's offensive decline last year is well known. As for the three offenses that failed to reach the big game, two of them -- the 2000-2002 49ers and 2001-2005 Chiefs -- partially fell victim to that more defensively-dominated era in the early 2000s that we discussed in Part I. Dick Vermeil's Chiefs may have had as much offensive talent as his Greatest Show on Turf Rams did, but the defense was never there and the AFC started to be controlled by the Patriots, Colts, and Steelers. That also played a factor in the third example, the 2008-2011 Chargers, never getting past the AFC's divisional round.
It certainly pays to build a great offense, and we know from countless studies that offensive success is more sustainable from year to year than defensive success. But how does one go about acquiring the pieces to build and sustain a great offensive unit? It would be crude to suggest "sign a Hall of Fame quarterback" as the first part of the strategy when there are only 25 modern-era (since 1945) Hall of Fame quarterbacks in existence. An offensively-driven team really needs that caliber of quarterback, but even when we add Kurt Warner, Tom Brady, Peyton Manning, Ben Roethlisberger, Eli Manning, Drew Brees, and Aaron Rodgers to the list of Hall of Famers, that is 32 players over the span of 70 years. Meanwhile, teams in 2016 are preparing to start Trevor Siemian, Blaine Gabbert, Shaun Hill, and Case Keenum in Week 1.
As much as some fan bases (Denver in particular this year) believe their team can win without a stellar quarterback, this table says otherwise. Manning was clearly not himself last year, but the DNA of a HOFer was still there. How many quarterbacks can pull off that 80-yard touchdown drive in Week 2 in Kansas City when the Broncos were down 24-17? It is impossible to say how the rest of the season would have progressed had Denver lost, but if every other game result had been the same, the Broncos would have slipped from the No. 1 seed to the No. 5 seed. It is hard to imagine any Super Bowl run then, and the Broncos led the NFL with seven games won by scores in the fourth quarter or overtime, including five against playoff teams. Brock Osweiler helped contribute to that too, but while the two Denver quarterbacks made plenty of mistakes last season, they still moved the ball (4,216 passing yards) and made those timely plays. Good luck expecting Trevor Siemian, a seventh-round pick with one kneeldown on his regular-season resume, to do the same this year.
Bob, you posted later about judging a player on how he played in the game. To do that, you need to stop looking at these as "excuses" and treat it as part of the analysis of what happened in the game. Many things are out of the QB's control. We can go back and look at Marino's fumbled snap or first red-zone interception, but there was a lot of things that went wrong that day irregardless of how Marino actually played.
A great quarterback on an average team can pick apart average defenses, but against the top defenses you meet in the playoffs it's harder for the quarterback to carry the team. See Peyton Manning for most of his Colts years, John Elway before Shanahan, Aaron Rodgers last year. 2ff7e9595c
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