CONTENT:
Running head: ACCOUNTING Basis adjustment under section 734(b) Name: University: Curse: Tutor: Date Basis adjustment under section 734(b) Introduction A policy of maximum recognition is pursued by the partnership tax contribution and distribution rules. When people enter into a partnership, there is very little tax disincentive involved when property is moved in and out of the partnership by the partners. The importance of this policy is that it ensures efficient formation of the partnership as well as making operation decisions. However, Osofsky (2006) says that partners are allowed by the nonrecognition of rules to shift and defer gains. Therefore, tax revenues are threatened and businesses can take advantage of inefficient transactions can be encouraged. There are some contribution and distribution rules provided under Subchapter K which curb shifting and deferral of gains and act as a backstop to the nonrecognition regime. Section 734(b) is an example of such a rule. The aim of section 734(b) is to preserve the correct amount of income after distribution (Osofsky, 2006). To be more specific, this section requires that when loss or gain is recognized by the distributee partner, there has to be basis adjustment inside the partnership. Second, the same will apply after the distributee partner changes the basis of assets in his or her hands upon distribution. Potential challenges Subchapter K of the Internal Revenue Code provides some efficient pa...