Common use of Disposition of partnership interest Clause in Contracts

Disposition of partnership interest. X is a C corporation that elects to become an S corporation on January 1, 1996. On that date, X owns a 50 percent interest in partner- ship P with a RBIG limitation of $200,000 and a RBIL limitation of $0. P owns (among other assets) Blackacre with a basis of $20,000 and a value of $140,000. In 1996, P sells Blackacre for $140,000 and recognizes a gain of $120,000 of which $60,000 is included in X’s distributive share and treated as a partner- ship 1374 item. X’s net recognized built-in gain for 1996 computed without partnership 1374 items is $95,000 and with partnership 1374 items is $155,000. Thus, X has a partnership RBIG of $60,000. In 1999, X sells its entire in- terest in P for $350,000 and recognizes a gain of $250,000. Under paragraph (i)(3) of this sec- tion, X’s recognized built-in gain on the sale is limited by its RBIG limitation to $140,000 ($200,000¥$60,000=$140,000).

Disposition of partnership interest. X is a C corporation that elects to become an S corporation on January 1, 1996. On that date, X owns a 50 percent interest in partner- ship P with a RBIG limitation of $200,000 and a RBIL limitation of $0. P owns (among other assets) Blackacre with a basis of $20,000 and a value of $140,000. In 1996, P sells Blackacre for $140,000 and recognizes a gain of $120,000 of which $60,000 is included in X’s distributive share and treated as a partner- ship 1374 item. X’s net recognized built-in gain for 1996 computed without partnership 1374 items is $95,000 and with partnership 1374 items is $155,000. Thus, X has a partnership RBIG of $60,000. In 1999, X sells its entire in- terest in P for $350,000 and recognizes a gain of $250,000. Under paragraph (i)(3) of this sec- tion, X’s recognized built-in gain on the sale is limited by its RBIG limitation to $140,000 ($200,000¥$60,000=$140,000200,000¥$60,000 = $140,000).