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Special Enrollment Examination
Part 1SEE Part 1: Individuals✓Part 2SEE Part 2: BusinessesPart 3SEE Part 3: Representation, Practices and ProceduresTy owns 60% of a partnership. He sells the partnership a building he held as an investment at a $20,000 loss. What is the result?
Under section 707(b)(1), no loss is allowed on a sale or exchange of property between a partnership and a partner who owns, directly or indirectly, more than 50% of the capital or profits interest. If the partnership later sells the property at a gain, it can reduce that gain by the disallowed loss. Ty owns 60%, so the loss is disallowed. Source: IRC 707(b)(1); Pub. 541 (12-2025), Transactions Between Partnership and Partners. Tax year: 2025 (law as of 31 Dec 2025).
Allowing losses between a partnership and its controlling partner.
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