Asset from liquidating partnerships
Gain or loss on each asset in the deemed sale is computed by reference to the ADSP allocated to that asset. Though deemed sale tax consequences may increase or decrease ADSP by creating or reducing a tax liability, the amount of the tax liability itself may be a function of the size of the deemed sale tax consequences.Thus, these determinations may require trial and error computations.
T has two classes of stock outstanding, voting common stock and preferred stock described in section 1504(a)(4).T and X's agreement to reduce the amount of the purchase money indebtedness would not, under general principles of tax law that would apply if the deemed asset sale had actually occurred, change the amount of liabilities of old target taken into account in determining its amount realized.Accordingly, ADSP is not redetermined at the time of the reduction.except that on July 1 of Year 1, P purchases only 80 of the 100 shares of T stock for $60,000.The grossed-up amount realized on the sale to P of P's recently purchased T stock (G) is $75,000 ($60,000/.8).The grossed-up amount realized on the sale to P of P's recently purchased T stock is calculated as follows: The total amount realized (without regard to selling costs) is $1,000 (500 225 275).
The percentage of T stock by value on the acquisition date attributable to the recently purchased T stock is 50% (1,000/(1,250 750)). The grossed-up amount realized is $1,900 (1,000/.5 − 100).
ADSP may not be applied in such a way as to contravene other applicable rules.
For example, a capital loss cannot be applied to reduce ordinary income in calculating the tax liability on the deemed sale for purposes of determining ADSP. For purposes of the examples in this paragraph (g), unless otherwise stated, T is a calendar year taxpayer that files separate returns and that has no loss, tax credit, or other carryovers to Year 1. T has no liabilities other than the Federal income tax liability resulting from the deemed asset sale, and the T shareholders have no selling costs.
The examples are as follows: On July 1 of Year 1, T's only asset is an item of section 1245 property with an adjusted basis to T of $50,400, a recomputed basis of $80,000, and a fair market value of $100,000.
P purchases all of the T stock for $75,000, which also equals the amount realized for the stock determined as if the selling shareholder(s) were required to use old target's accounting methods and characteristics.
This section provides rules under section 338(a)(1) to determine the aggregate deemed sale price (ADSP) for target.