IRS written determination 201613002

Private letter rulings and published taxpayer determination letters. Native document type is retained separately; a determination letter is not labeled a private letter ruling. These taxpayer-specific releases cannot be used or cited as precedent under 26 USC 6110(k)(3); applicability and current legal force are not independently certified. Keep repeated UILC subjects attached to one actual numbered document.

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 201613002
Release Date: 3/25/2016
Index Number: 707.00-00
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Third Party Communication: None
Date of Communication: Not Applicable
Person To Contact:
-----------------------, ID No. -------------------
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Telephone Number:
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Refer Reply To:
CC:PSI:01
PLR-118026-15
Date:
December 16, 2015
Legend
X =---------------------------------------
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Y = -------------------------------------------
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Z =----------------------------------------
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A =--------------
B =------------------
C =------------------
D =----------------------------
Year1=-------
Date1=---------------------------
State1=--------------
Fund1=-----------------------------------------------
Fund2=----------------------------------------------
n1 =------------------

PLR-118026-15
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n2 =------------------
n3 =------------------
n4 =----------------
n5 =----------------
Dear ---------------:
This responds to your letter dated May 27, 2015, and subsequent correspondence,
submitted on behalf of X, requesting a ruling under §§ 707(b)(1) and 267(d) of the
Internal Revenue Code (Code).
FACTS
According to the information submitted, X, Y, and Z are grantor trusts within the
meaning of §§ 671 through 679. X, Y, and Z were formed in Year1by A, B, and C,
respectively, and each is held for the benefit of its grantor’s descendants. D is a State1
limited liability company treated as a partnership for U.S. federal income tax purposes.
On Date1, pursuant to separate purchase and sale agreements, D sold its membership
interests in Fund1and Fund2to X, Y, and Z (collectively, the Purchasing Trusts) in
equal proportions (the Sale). Fund1and Fund2are partnerships for U.S. federal
income tax purposes for which no section 754 elections have been made. In
connection with the sale of D’s membership interests in Fund1 and Fund2, D reported a
$n1 capital loss. Pursuant to §§ 743(b) and (d) and 755, the bases of the assets of
Fund1and Fund2were, in the aggregate, decreased with respect to the Purchasing
Trusts by $n2.
$n3 of the capital loss was disallowed pursuant to § 707(b)(1)(a) (the Disallowed Loss).
The portion of the loss attributable to membership interests in Fund1and Fund2sold to
X was $n4. The downward basis adjustment with respect to X was $n5.
Notwithstanding the Disallowed Loss, the downward basis adjustment with respect to X
was not changed and remains in effect.
Since the Sale, both Fund1and Fund2have recognized gains on disposition of assets
held at the time of the Sale. In addition, it is expected that Fund1and Fund2may
recognize gains in the future on dispositions of assets held at the time of the Sale. X
may also recognize gain in the future on the disposition of its membership interest in
Fund1or Fund2.
X requests a ruling regarding whenit is entitled to reduce all or a portion of the gain
allocated to it on the sale of the assets by the previously disallowed loss.

PLR-118026-15
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LAW & ANALYSIS
Section 267(d) provides that if (1) in the case of a sale or exchange of property to the
taxpayer a loss sustained by the transferor is not allowable to the transferor as a
deduction by reason of subsection (a)(1); and (2) the taxpayer sells or otherwise
disposes of such property (or of other property the basis of which in his hands is
determined directly or indirectly by reference to such property) at a gain, then such gain
shall be recognized only to the extent that it exceeds so much of such loss as is
properly allocable to the property sold or otherwise disposed of by the taxpayer. This
subsection shall not apply if the loss sustained by the transferor is not allowable to the
transferor as a deduction by reason of § 1091 (relating to wash sales).
Section 707(b)(1) provides that no deduction shall be allowed in respect of losses from
sales or exchanges of property (other than an interest in the partnership), directly or
indirectly, between (A) a partnership and a person owning, directly or indirectly, more
than 50 percent of the capital interest, or the profits interest, in such partnership, or (B)
two partnerships in which the same persons own, directly or indirectly, more than 50
percent of the capital interests or profits interests. In the case of a subsequent sale or
exchange by a transferee described in this paragraph, § 267(d) shall be applicable as if
the loss were disallowed under § 267(a)(1). For purposes of § 267(a)(2), partnerships
described in subparagraph (B) of this paragraph shall be treated as persons specified in
§ 267(b).
Treas. Reg. § 1.707-1(b)(1)(ii) provides that if a gain is realized upon the subsequent
sale or exchange by a transferee of property with respect to which a loss was
disallowed under the provisions of subdivision (i) of this paragraph, § 267(d) shall apply
as though the loss were disallowed under § 267(a)(1).
CONCLUSION
Based solely on the facts submitted and the representations made, we conclude that
pursuant to §§ 707(b)(1) and 267(d), upon a sale or other disposition by Fund1or
Fund2of property that was the subject of a downward basis adjustment pursuant to
§§ 743(b) and 743(d) with respect to X as a result of the Sale (or of other property the
basis of which is determined directly or indirectly by reference to such property), X shall
recognize gain only to the extent that it exceeds the amount of the Disallowed Loss
properly allocable to the property sold or otherwise disposed of by Fund1or Fund2.
The ruling contained in this letter is based upon information and representations
submitted by the taxpayer and accompanied by a penalty of perjury statement executed
by an appropriate party. While this office has not verified any of the material submitted
in support of the request for rulings, it is subject to verification on examination.

PLR-118026-15
4
Except as expressly provided herein, no opinion is expressed or implied concerning the
tax consequences of any aspect of any transaction or item discussed or referenced in
this letter.
This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code
provides that it may not be used or cited as precedent. In accordance with the Power of
Attorney on file with this office, a copy of this letter is being sent to your authorized
representatives.
Sincerely,
David R, Haglund
David R. Haglund
Chief, Branch 1
Office of the Associate Chief Counsel
(Passthroughs& Special Industries)
Enclosures (2)
Copy of this letter
Copy for § 6110 purpose