Having worked through section 704(b) special allocations, the class turns to section 704(c). The good news is that section 704(c) is much easier to understand, at least at the level studied in the course, than section 704(b). Students had encountered contributed property when dealing with partnership formations, and had a brief introduction to the section 704(c) contributed property allocation rules when learning how to compute partners’ shares of liabilities under the section 752 regulations. Though the initial encounter was limited to the traditional method, at this point discussion also includes the curative and remedial methods, illustrated through examples. It also makes sense to include at this point a look at section 724, because it applies when partnerships dispose of contributed property. This subtopic concludes with a problem set that deals with sales of contributed property. The course does not cover allocation of depreciation deductions arising from contributed propery, both because of time constraints and because that is a topic too complicated for an introductory course.

After dealing with section 704(c), discussion advances to the section 706(d) varying interest rule. To cope with the limitations of a 3-credit course, this subtopic is handled with a brief lecture and two examples. This approach works because the issues and the principles are not unlike those arising when interests in an S corporation change.

Following discussion of varying interests, the class turns to section 704(e). Misleadingly titled “family partnerships,” it reaches beyond family transactions to cover not only partnership interests created by gift no matter the relationship but also recognition of a person as a partner even if no gift is involved. Once students understand this incoherency in section 704(e), it becomes a bit easier to understand the reach of the provision and its limited scope. Two problem sets involving very simple fact patterns are used to demonstrate what section 704(e) does and does not do.

The partnership allocation topic closes with a discussion of section 707, which deals with transactions between partners and partnerships. Specifically, the focus is on transactions in which the partner acts other than in the capacity as a partner and on guaranteed payments. Because students should have learned in, and remembered from, the basic tax course how sections 267 and 1239 function, they are left on their own to learn section 707(b), which is the partnership equivalent of those two provisions. Several problems, dealing with subsections (a) and (c) of section 707, close out the partnership allocation topic.

At this point, I direct students to look at the summary that I provide to them in the course materials that overviews partnership allocations. I do this so that they can recover a sense of the big picture after having been immersed in five subtopics each of which is replete with details and technicalities even after being screened to simplify the discussion for the purposes of an introductory course.

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