Code Section 752 Liabilities Include Obligations Under Construction Contract

Partners in a partnership receive adjusted basis in their partnership interests for their allocable share of partnership liabilities. Since basis will allow for distributions to be made to partners without gain, losses to be deducted by partners, and gain reduction on a sale of a partnership interest, such basis is often advantageous.

When thinking about what partnership liabilities count for this purpose, most practitioners will first think of promissory notes, mortgages, and other major booked liabilities of the partnership. A recent private letter ruling points out that other esoteric liabilities can enter this computation.

In the PLR, the partnership received “notice to proceed” payments..