Rev. Rul. 75-62

Advice has been requested whether the taxpayer, a life insurance company taxable under section 802 of the Internal Revenue Code of 1954, which is a partner in a partnership, should take into account its partnership interest as an "other asset" valued at its adjusted basis under section 805(b)(4)(B).

The taxpayer entered into a partnership agreement with another corporation for the purpose of continuing the development of a residential community comprising both improved and unimproved real property. The taxpayer, in acquisition of its 50 percent partnership interest, contributed a certain amount of cash to the partnership.

Under section 805(b)(4) of the Code, the term assets means all assets of the company (including nonadmitted assets), other than real and personal property (excluding money) used by it in carrying on an insurance trade or business. For purposes of section 805(b)(4), real property (other than excluded real property) and stock are to be valued at their fair market value and all other assets are to be valued at their adjusted basis. The legislative history of section 805(b)(4) contains no stated legislative purpose for the different valuations.

Under subchapter K of the Code, a partnership is considered for various purposes, to be either an aggregate of its partners or an entity, transactionally independent of its partners. See S. Rep. No. 1622, 83d Cong., 2d Sess. 89 (1954) and H.R. Rep. No. 2543, 83d Cong., 2d Sess. 59 (1954). There exists no exclusive rule as to when a partnership will be viewed as an entity or an aggregate. The resolution is generally dependent upon the question to be resolved. Compare Rev. Rul. 69-125, 1969-1 C.B. 207, which holds that partnership loans to a subchapter S corporation were loans made by the partnership and not the partners, with Rev. Rul. 60-352, 1960-2 C.B. 208, which holds that a gratuitous transfer of a partner's interest in a partnership that held installment obligations, was a disposition of installment obligations.

In the instant case, the question concerns the nature of a life insurance company's investment. In general, subchapter K of the Code adopts an entity approach with respect to partnership interests. For example, section 705 gives a partner a basis for his interest in the partnership separate from his individual interest in partnership property, and section 741 permits, in general, a partner to sell his partnership interest without disturbing the partnership's basis for partnership assets.

There is no indication in the legislative history of section 805(b)(4) of the Code suggesting that the adoption of the entity approach under the facts of the instant case is inappropriate, and in the absence of tax avoidance, there is no compelling reason to view the taxpayer's interest in the aggregate.

Accordingly, the partnership interest acquired by the taxpayer through a cash contribution to the partnership, is an asset that should be taken into account as an "other asset" valued at its adjusted basis under section 805(b)(4)(B) of the Code.