rr-05-10.pdf

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# Part I

Section 704 .- Partner's Distributive Share

Rev. Rul. 2005-10

Rev. Rul. 2004-43, 2004-18 I.R.B. 842, issued on April 12, 2004, addresses the
application of §§ 704(c)(1)(B) and 737 to § 704(c) gain or loss that is created in an
assets-over partnership merger. Rev. Rul. 2004-43 holds that § 704(c)(1)(B) applies to
newly created § 704(c) gain or loss in property contributed by the transferor partnership
to the continuing partnership in an assets-over partnership merger, but does not apply
to newly created reverse § 704(c) gain or loss resulting from a revaluation of property in
the continuing partnership. The revenue ruling also holds that for purposes of § 737(b),
net precontribution gain includes newly created § 704(c) gain or loss in property
contributed by the transferor partnership to the continuing partnership in an assets-over
partnership merger, but does not include newly created reverse § 704(c) gain or loss
resulting from a revaluation of property in the continuing partnership.

Some commentators have argued that Rev. Rul. 2004-43 is not consistent with
the current regulations under §§ 704(c)(1)(B) and 737, and that the conclusions in the
ruling should not be applied retroactively. In response to these comments, the Treasury
Department and the Service intend to issue regulations under §§ 704(c)(1)(B) and 737

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implementing the principles of Rev. Rul. 2004-43. The regulations will be effective for
distributions occurring after January 19, 2005. See Notice 2005-15, published in this
issue of the Internal Revenue Bulletin.

## EFFECT ON OTHER REVENUE RULING(S)

Rev. Rul. 2004-43 is revoked.

# DRAFTING INFORMATION

The principal author of this revenue ruling is Laura Fields of the Office of
Associate Chief Counsel (Passthroughs and Special Industries). For further information
regarding this revenue ruling, contact Ms. Fields at (202) 622-3050 (not a toll-free call).