Asset from liquidating partnerships
The time for taking into account liabilities of old target in determining ADSP and the amount of the liabilities taken into account is determined as if old target had sold its assets to an unrelated person for consideration that included the discharge of the liabilities by the unrelated person.For example, if no amount of a target liability is properly taken into account in amount realized as of the beginning of the day after the acquisition date, the liability is not initially taken into account in determining ADSP (although it may be taken into account at some later date).In general, the liabilities of old target are measured as of the beginning of the day after the acquisition date.(But see § 1.338-1(d) (regarding certain transactions on the acquisition date).) In order to be taken into account in ADSP, a liability must be a liability of target that is properly taken into account in amount realized under general principles of tax law that would apply if old target had sold its assets to an unrelated person for consideration that included the discharge of its liabilities. Such liabilities may include liabilities for the tax consequences resulting from the deemed sale.P acquires all of the stock of T in Year 3 for 0,000 and makes a section 338 election for T.Assume T has no liabilities other than its purchase money indebtedness to X.ADSP is allocated among target's assets in accordance with § 1.338-6 to determine the amount for which each asset is deemed to have been sold.
S1 continues to own the remaining 20 percent of the outstanding T stock.In Year 4, when T is neither insolvent nor in a title 11 case, T and X agree to reduce the amount of the purchase money indebtedness to ,000.Assume further that the reduction would be a purchase price reduction under section 108(e)(5).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 ,400, a recomputed basis of ,000, and a fair market value of 0,000.P purchases all of the T stock for ,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.
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.