REVENUE RULE 95-21

1995-11 I.R.B. 4,

EXTENT OF RECOGNITION OF GAIN OR LOSS ON DISTRIBUTION

Published: March 13, 1995

Section 61. - Gross Income Defined, 26 CFR 1.61 -12: Income from discharge of indebtedness.

Section 108. - Income from Discharge of Indebtedness

Section 731. - Extent of Recognition of Gain or Loss on Distribution, 26 CFR 1.731-1: Extent of recognition of gain or loss on distribution.

(Also §§61, 108, 752, 1.61-12, 1.752-1.)

What are the income tax consequences when a partnership and all of its partners are adjudicated bankrupt and discharged from indebtedness?

Extent of recognition of gain or loss on distribution. The income tax consequences when a partnership and all of its partners are adjudicated bankrupt and discharged from an indebtedness are determined under section 108 of the Code. Rev.Rul. 71-301 obsoleted.

Rev.Rul. 71-301, 1971-2 C.B. 256, addressed the income tax consequences when a partnership and all of its partners were adjudicated bankrupt and discharged from an indebtedness. In the Bankruptcy Tax Act of 1980, 1980-2 C.B. 607, Congress amended s 108 of the Internal Revenue Code to provide specific tax rules applicable to this situation. See S.Rep. No. 1035, 96th Cong., 2d Sess. 20 (1980), 1980-2 C.B. 620, 631.

Periodically, the Internal Revenue Service has declared certain revenue rulings obsolete that, although not specifically revoked or superseded, are no longer determinative with respect to future transactions because (1) the applicable statutory provisions have been changed or repealed; (2) the ruling position is specifically covered by statute, regulations, or a subsequent published position; or (3) the facts set forth no longer exist or are not sufficient to permit application of the current statute.

Accordingly, since the ruling position of Rev.Rul. 71-301 is now specifically covered by statute, Rev.Rul. 71-301 is obsolete with respect to transactions occurring after the effective date of the amendments to s 108 made by the Bankruptcy Tax Act of 1980. Certain income tax consequences of transactions occurring after the effective date of the Bankruptcy Tax Act of 1980 are addressed in Rev.Rul. 92-97, 1992-2 C.B. 124.

DRAFTING INFORMATION

The principal author of this revenue ruling is Robert Rio of the Office of Assistant Chief Counsel (Passthroughs & Special Industries). For further information regarding this revenue ruling contact Robert Rio on (202) 622-3060 (not a toll-free call).

Section 752. - Treatment of Certain Liabilities, 26 CFR 1.752-1: Treatment of partnership liabilities.