Topics: Taxation in the United States, Tax, Partnership Pages: 18 (8257 words) Published: October 13, 2014
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Federal Library
Federal Source Materials
Federal Tax Decisions
American Federal Tax Reports
American Federal Tax Reports (Prior Years)
AFTR 2d Vol. 51
51 AFTR 2d 83-1268-A - 51 AFTR 2d 83-1088
COMM. v. TUFTS, ET AL., 51 AFTR 2d 83-1132 (103 S.Ct. 1826), Code Sec(s) 752; 1001; 1012, (S Ct), 05/02/1983

American Federal Tax Reports

COMM. v. TUFTS, ET AL., Cite as 51 AFTR 2d 83-1132
(103 S.Ct. 1826), Code Sec(s) 752, (S Ct), 05/02/1983

Case Information:
[pg. 83-1132]
Code Sec(s):


Court Name:

U.S. Supreme Court,

Docket No.:

No. 81-1536,

Date Decided: 05/02/1983
Prior History:

Court of Appeals for the Fifth Circuit,
2d 81-5660, reversed.


Tax Year(s):

Year 1972.


Decision for Govt.


51 AFTR 2d 83-1132, 461 US 300, 103 S Ct
1826, 75 L Ed 2d 863, 83-1 USTC P 9328.

1. GAIN OR LOSS—Amount realized—obligation assumed, cancelled, reduced, or

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taken subject to by buyer. Partner who sold interest in partnership that operated apartment complex realized amount equal to outstanding balance of nonrecourse mortgage even though balance exceeded FMV of complex. And Sec. 752(c) didn't limit amount realized to FMV. That section is directed at transactions between partner and partnership. Reference(s): 1983 P-H Fed. ¶28,821(10); 31,026(15); 31,162(25). Code Sec. 1001;

Code Sec. 752;

Code Sec. 1012.

1. Lower court issue not decided on appeal: JUDICIAL PROCEEDINGS—Jurisdiction of courts and related matters—award [pg. 83-1133]of costs and attorney's fees. Reference(s): 1983 P-H Fed. ¶38,850(1).

Certiorari To The United States Court
Of Appeals For The Fifth Circuit.
Section 752(d) of the Internal Revenue Code of 1954 (IRC) provides that liabilities incurred in the sale or exchange of a partnership interest are to be treated "in the same manner as liabilities in connection with the sale or exchange of property not associated with partnerships." Under

§1001(a) of the IRC, the gain or loss from a sale or other disposition

of property is defined as the difference between "the amount realized" on the disposition and the property's adjusted basis. Section 1001(b) defines the "amount realized" as "the sum of any money received plus the fair market value of the property (other than money) received." A general partnership formed by respondents in 1970 to construct an apartment complex entered into a $1,851,500 nonrecourse mortgage loan with a savings association. The complex was completed in 1971. Due to the partners' capital contributions to the partnership and income tax deductions for their allocable shares of ordinary losses and depreciation, the partnership's claimed adjusted basis in the property in 1972 was $1,455,740. Because of an unanticipated reduction in rental income, the partnership was unable to make the payments due on the mortgage. Each partner thereupon sold his interest to a third party, who assumed the mortgage. The fair market value on the date of transfer did not exceed $1,400,000. Each partner reported the sale on his income tax return and indicated a partnership loss of $55,740. The Commissioner of Internal Revenue, however, determined that the sale resulted in a partnership gain of approximately $400,000 on the theory that the partnership had realized the full amount of the nonrecourse obligation. The United States Tax Court upheld the deficiencies, but the Court of Appeals reversed.

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Held: When a taxpayer sells or disposes of property encumbered...
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