Mandatory Basis Step Down

Technical topics regarding tax preparation.
#1
Lakers  
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San Diego
A nonprofit foundation had an interest in a partnership. All that the partnership owns is notes receivables for which they generate substantial interest income.

The nonprofit foundation also had a note payable to someone for $250,000. In full consideration for cancelling the note payable, the nonprofit foundation settled it for their 99% interest in the above partnership. The inside basis of the note receivable was $1,000,000, so there is presumably a substantial basis reduction under Sec. 734(d) for the new partner.

Questions:

When is the negative basis adjustment put into income for the new partner? Is it pro-rata as the partnership collects principal on the note receivable? Or is it when the note is fully collected in full? Or is it when the partner disposes of the partnership interest?

Thanks so much.
 

#2
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I don't see an inside basis adjustment because I don't see a distribution for purposes of 734(d). if there is a 754 election in effect, then 743 provides for an inside basis adjustment due to the sale of the partnership interest.
Steve
 

#3
lckent  
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Colorado
There is a substantial built-in loss under Sec 743(d) which requires a Sec 743(b) adjustment, whether or not there is a Sec 754 election in effect.
CPA, Retired
 

#4
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I stand corrected. Thank you!
Steve
 


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