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Partnership disguised sale case: bad news for the Chicago Tribune?

December 16, 2009

You can put appreciated assets into a partnership tax-free. You can take cash out of partnership tax free. If you could both at the same time, you could indefinitely defer your gain on a sale assets by running it through a partnership. That's why the tax law has "disguised sale rules" that treat such deals as taxable sales if run through a partnership; if cash comes out to the partners that contributed appreciated assets within two years of the contribution, the tax law assumes a sale has taken place unless the partners prove otherwise.

A New Jersey U.S. district court this week ruled that GAF corporation ran afoul of these rules in an elaborately-structured $450 million transaction (via the TaxProf). UPDATE: I should have noted that the taxpayer avoided the tax because the IRS assessment was untimely.

Cub fans will find this interesting because the sale of the Cubs this year was also done through an elaborate partnership structure designed to finesse the disguised sale rules. Fortunately for Cub fans, if the transaction blows up -- and it might not -- the taxes will probably be the Tribune's problem, rather than the new owners, leaving the Cubs with the cash they will need to get somebody to take Milton Bradley.

Tags: Chicago Tribune.Cubs.Partnerships.TaxProf.