Sale of Business Assets: Contingent Liabilities and Economic Performance

The sale of real estate or other business or investment assets often entails the transfer of liabilities by the seller of the property. The liabilities involved may be recourse or nonrecourse, fixed or contingent, and may involve expenditures that may be tax deductible, may require capitalization or may be neither deductible or capitalizable. The definition of liability is not always clear. In this article the authors recommended use of a definition included in a then temporary partnership regulation, but that has now been adopted by Reg.1.752-1(a)(4), and the author still believe it should be considered applicable more broadly. They note that it has subsequently be used in several tax shelter cases, particularly ones involving short sale obligations. In this article the authors seek to deal comprehensively with the treatment of liabilities in a variety of contexts, including installment sales and nonrecognition exchanges. Accordingly, despite its age, much if not most of the discussion is still valid.