The TRA '97's new basis allocation rules for property distributions

The Taxpayer Relief Act of 1997 enacted several provisions affecting entities taxed as partnerships. The most significant change, TRA '97 Section 106, amending Sec. 732(C), effective for tax years beginning after August 5, 1997, relates to the allocation of a partner's basis in property distributed to him by the partnership for which he cannot take a carryover basis. Inability to take a carryover basis in distributed assets occurs in a nonliquidating distribution when the partner has insufficient basis in his partnership interest to allocate to the assets, and in a liquidating distribution when his basis in his partnership interest must be allocated to the assets distributed. The TRA '97 introduced a different methodology for allocating basis to the distributed assets, although the precise methodology used depends on whether an increase or a decrease to the partnership's basis is required. New and old allocation results are contrasted and planning opportunities are explored.