IRS Rev. Rul.: Economic Substance Doctrine for Partnership Related-Party Basis Adjustments (IRC §7701)

Using three example situations, Taxpayers are advised of the IRS’s position challenging certain partnership related-party transactions under the codified economic substance doctrine in I.R.C. §7701(o), the IRS stated. The ruling applies the economic substance doctrine involving related parties where some or all of whom are partners in a partnership, and the parties: (1) create basis disparities through various methods; (2) capitalize on these basis disparities either by transferring a partnership interest in a nonrecognition transaction or by making a current or liquidating distribution of partnership property to a partner; and (3) claim a basis adjustment under §732(b), §734(b), or §743(b). ...