Clearly, the first losses must be allocated to the partner who, under §704(b) principles, will be deemed to bear the loss, which in the facts above is the partner who contributed the intangible property, even though that partner might have no basis or amount at risk to deduct the loss. The §704(c) implications are too complicated to be addressed in a paragraph, but involve a consideration of the §704(c) method (traditional or remedial) elected by the partnership (LLC) – issues discussed at our programs.
Q. If a person contributes cash to a partnership (LLC) for a “liquidation preferred” partnership (LLC) interest and another person contributes zero-basis intangible property, how do §704(b) and §704(c) operate to allocate the losses that may be generated?
A.