Nilodop wrote:There's one thing I'm not clear on, however: is an asset expensed under the de minimis safe harbor that would otherwise be a 1245 asset considered to be a 1245 asset?. Here's an old thread that's on point but may not answer the question.
viewtopic.php?f=8&t=8095
The answer to the question wasn't stated outright, but based on the responses I think most of the contributors would agree that DMSH property is
not considered 1245 property. It's unclear whether most of them would agree that the reason is that it isn't property at all, or that it is property, but wasn't ever "of a character subject to the allowance for depreciation provided in section 167".
My sense is that any other section of the code, outside of the capitalization, basis and depreciation rules, would treat it as property, so maybe the second interpretation is better. Maybe we should consider it "non-capitalized property".
And the point of this exercise is that if DMSH property really isn't 1245 property, then the de minimis election is a way to avoid the recognition of ordinary income under section 751.
Nilodop wrote:The tax return of the old partnership should have the technical termination and final return boxes checked. You have an actual termination.
Although it isn't called a technical termination, the termination I have is similar in that one of the partners retains her capital account within the LLC in a book sense even as the tax treatment changes. Because Schedule L is the "balance sheet per books", and there was never a set of books kept for this LLC that showed $0 for all assets, liabilities and equity, it seems strange to put $0.
In answering the question of whether to put $0 anyways, it makes sense to look at other similar situations such as technical terminations.
Nilodop wrote:Which regs?. 1.706-4, 1.704-1(b), 1.708-1(b), maybe more.
I've reviewed those and I agree that the transactions should cover the entire day. I also think it's reasonable to deem the transfer to have happened at the end of the end of the day as a result.
Jeff-Ohio wrote:There was quite a bit of commentary on 99-6 when it came out. And it doesn’t address a non-taxable transfer, like a gift. The AICPA’s comments can be found here:
https://www.aicpa.org/content/dam/aicpa ... submit.pdf The construct recommended by the AICPA is on Page 22.
You know, I actually looked at those comments, but it somehow didn't occur to me that anyone was suggesting that non-taxable transfers should happen differently. After I read your post I re-examined RR 99-6 to see what the IRS' position was based on to begin with and whether it might not apply to gift transfers. Their reasoning seems largely based on McCauslen v. Commissioner, 45 T.C. 588, which held that the purchasing partner could not apply section 735(b) to the property that was acquired in a transaction that terminated the partnership. The purchase was held to reset the holding period in those assets.
In the case of a gift, there is no holding period issue, and thus no reason to apply the odd split-treatment "workaround" set forth in RR 99-6. So I agree that it should be disregarded in this case.
There's something a little odd about presenting the 100% distribution to the wife on the 1065, which is a transaction that occurs after the LLC is no longer a partnership. But I suppose this is consistent with showing $0 on Schedule L regardless of what the actual books of the LLC say.