U.S. Tax Court Rules Partner’s Contribution of Own Promissory Note Yields Zero Basis in Partnership Interest

The U.S. Tax Court held that a partner’s contribution of its own promissory note to a partnership resulted in zero basis in the partnership interest and zero basis in the note for the partnership, affirming the IRS’s determination. The taxpayer, a corporation, contributed a promissory note to a partnership through its disregarded entity subsidiary. The court treated the transaction as if the taxpayer had directly contributed its own note to the partnership, disregarding the subsidiary’s involvement. The court held that under IRC §722, the taxpayer’s basis in its partnership interest was equal to its adjusted basis in the contributed note, ...