Question

Gerard has a 60% interest in the capital and profits of Sly Partnership. He also owns a 65% interest in the capital and profits of Brice Partnership. On February 5, 2014, Sly Partnership sold land to Brice Partnership for $35,000. At the time of the sale, the land had an adjusted basis to Sly Partnership of $40,000. What is the amount of loss that Sly Partnership can recognize in 2014?

Answer 1

As you can observe, Gerard has more than 50% interest in both the partnerships that is in Sly partnership and Brice partnership. And also Sly partnership sold a land to Brice partnership at a loss of $5,000. In this case sly partnership cannot recognise any loss because these both are related partnerships and the sale is treated as a fake transaction to manipulate the books and evade taxes. This transaction will increase the net income of Brice partnership and decrease the net income of Sly partnership which is not a genuine transaction.