Volume 5 Winter 2011 Number 2 - Charleston Law Review

CHARLESTON LAW REVIEW [Volume 5C. Attribute Reduction and § 1017(b)(3)Where there is exclusion from gross income attributable to adischarge in a Title 11 case or an insolvency situation, a taxpayermay be able to take advantage of the tax attribution rules. 167However, these provisions are of no real significance in thesituations being discussed, because the exemption only applies atthe partner level. 168 On the other hand, the attribution reductionrules pertain to the case in which there is discharge of QRPBIunder § 108(c)(1). Where there is an election to reduce the basisof depreciable property under § 108(b)(5), then any interest of apartner in a partnership is treated as depreciable property to theextent of the partner’s proportionate interest in the depreciableproperty held by such partnership, provided that there is acorresponding reduction in the partnership’s basis in depreciableproperty with respect to such partner. 169As a general rule, a partner may choose whether or not torequest that a partnership reduce the inside basis of itsdepreciable real property with respect to such partner, and thepartnership may grant or withhold such consent, in its solediscretion. A request by the partner must be made before thedue date for filing the taxpayer’s federal return for the taxableyear in which the taxpayer has cancellation of indebtednessincome that is excluded from gross income under § 108(a). 170 Apartnership must consent to reduce its partners’ shares of insidebases with respect to a discharged indebtedness if consent isrequested with respect to such indebtedness by partners owning,directly or indirectly, an aggregate of more than 80% of thecapital and profits interests of the partnership or five or fewerpartners owning, directly or indirectly, an aggregate of more than50% of the capital and profits interests of the partnership. 171 Forexample, if there is a cancellation of partnership indebtednessthat is secured by real property used in a trade or business, and260167. I.R.C. § 108; see also I.R.C. § 1017.168. I.R.C. § 108(d)(6).169. Treas. Reg. § 1.1017-1(g)(2)(ii)(A) (2009).170. § 1.1017-1(g)(2)(i).171. § 1.1017-1(g)(2)(ii)(C).