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Revenue Ruling 99-5: What are the federal income tax consequences when a…

- - - - Under § 721(a), no gain or loss is recognized by A or B as a result of the conversion of the disregarded entity to a partnership.
        
        Under § 722, B's basis in the partnership interest is equal to $5,000, the amount paid by B to A for the assets which B is deemed to contribute to the newly-created partnership. A's basis in the partnership interest is equal to A's basis in A's 50% share of the assets of the LLC.
        
        Under §723. the basis of the property treated as contributed to the partnership by A and B is the adjusted basis of that property in A's and B's hands immediately after the deemed sale.
        
        Under § 1223(1), A's holding period for the partnership interest received includes A's holding period in the capital assets and property described in §1231 held by the LLC when it converted from an entity that was disregarded as an entity separate from A to a partnership. B's holding period for the partnership interest begins on the day following the date of B's purchase of the LLC interest from A. Under §1223(2), the partnership's holding period for the assets deemed transferred to it includes A's and B's holding period for such assets.
- - - - Under § 722, B's basis in the partnership interest is equal to $10,000, the amount of cash contributed to the partnership. A's basis in the partnership interest is equal to A's basis in the assets of the LLC which A was treated as contributing to the newly-created partnership.
        
        Under § 723, the basis of the property contributed to the partnership by A is the adjusted basis of the property in A's hands. The basis of the property contributed to the partnership by B is $10,000, the amount of cash contributed to the partnership.
        
        Under § 1223(1), A's holding period for the partnership interest received includes A's holding period in the capital and § 1231 assets deemed contributed when the disregarded entity converted to a partnership. B's holding period for the partnership interest begins on the day following the date of B's contribution of money to the LLC. Under § 1223(2), the partnership's holding period for the assets transferred to it includes A's holding period.
- - - - § 351(a). General rule: No gain or loss shall be recognized if property is transferred to a corporation by one or more persons solely in exchange for stock in such corporation and immediately after the exchange such person or persons are in control (as defined in section 368(c)) of the corporation.
    - - § 1001(a) provides that the gain or loss from the sale or other disposition of property shall be the difference between the amount realized therefrom and the adjusted basis provided in §1011.
        
        § 1223(1) provides that, in determining the holding period of a taxpayer who receives the property in an exchange, there shall be included the period for which the taxpayer held the property exchanged if the property has the same basis in whole or in part in the taxpayer's hands as the property exchanged, and the property exchanged at the time of the exchange was a capital asset or property described in § 1231.
        
        § 1223(2) provides that, regardless of how a property is acquired, in determining the holding period of a taxpayer who holds the property, there shall be included the period of which such property was held by any other person if the property has the same basis in whole or in part in the taxpayer's hands as it would have in the hands of such other person.
        
        Holding period carries over when such exchange was for a capital asset as defined in section 1221 or property described in section 1231.
        
        1231(b) Definition of property in the trade or business.--For purposes of this section--
        
        (2) Timber, coal, or domestic iron ore. --Such term timber, coal and iron ore with respect to which section 631 applies
        
        (3) Livestock.--Such term includes
        
        (A) cattle and horses, regardless of age, held by the taxpayer for draft, breeding, dairy, or sporting purposes, and held by him for 24 months or more from the date of acquisition, and
        
        (B) other livestock, regardless of age, held by the taxpayer for draft, breeding, dairy, or sporting purposes, and held by him for 12 months or more from the date of acquisition.
        
        (1) General Rule: The term "property used in the trade or business" means property used in the trade or business, of a character which is subjectto the allowance for depreciation provided in section 167, held for more than 1 year, and real property used in the trade or busienss, held for more than 1 year, which is not--
        
        (B) property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business.
        
        (C) A copyright, a literary, musical, or artistic composition, a letter or memorandum, or similar property, held by a taxpayer described in paragraph (3) of section 1221(a)
        
        (A) property of a kind which would properly be includible in the inventory of the taxpayer if on hand at the close of the taxable year.
        
        (D) a publication of the United States Government (including Congressional Record) which is received from the United States Government, or any agency thereof, other than by purchase at the price at which it is offered for sale to the public, and which is held by a taxpayer described in paragraph (5) of section 1221(a).
        
        (4) Unharvested Crop. -- In the case of an unharvested crop on land used in the trade or business and eld for more than 1 year, if the crop and the land are sold or exchanged (or compulsorily or involuntarily converted) at the same time and to the same person, the crop shall be considered as "property used in the trade or business."
        
        1221 Capital Asset Defined
        
        §1011 Adjusted Basis for determining gain or loss: (a) General rule:-- the adjusted basis for determining the gain or loss from the sale or other disposition of property, whenever acquired, shall be the basis (determined under §1012 or other applicable sections of this subchapter and subchapter C (relating to corporate distributions and adjustments), K (relating to partners and partnerships), and P (relating to capital gains and losses)), adjusted as provided in section 1016.