Highlights From the Practising Law Institute Annual Real Estate Tax Forum In New York

• Partnership liquidating distributions are almost never made in accordance with capital accounts as directed by the 704(b) safe harbor, except where for fractions rules partnerships. With today's complicated profit and loss allocations, errors are commonly made, and liquidations in accordance with capital would deviate from the economic deal. The fix is made, rather, in future year allocations.
• Deficit restoration obligations are uncommon, too, due to the potential economic liability
• The Sec. 1223 rule bifurcating the holding period of a partnership interest for each capital contribution can be remedied to the extent a current year contribution is offset by a current year distribution
• Direct ownership of a US corporation owning real estate is acceptable with foreign investors whose primary concern is not having to file personally with the IRS. FIRPTA exception for liquidation of USRPHC which has liquidated all its properties avoids the double tax. However, more sophisticated investors will use a tax haven foreign corporation/US subsidiary structure to also avoid the estate tax.