Tagfifth circuit

Abandonment – The Sequel

By:  Amanda Wilson

Here is a brief article that goes into more detail than yesterday’s post regarding the recent decision that impacts abandonment losses.  The article can be found here.

Abandonment Losses Back on the Table!

Magnifying Glass and TaxBy:  Amanda Wilson

Several years ago, many taxpayers faced with underwater partnerships would abandon their partnership interests, thereby triggering an ordinary loss.  This ordinary loss was often preferred over the capital loss that would be triggered if the taxpayer’s sold their partnership interests or liquidated the partnership.  Capital losses are less advantageous, as they can generally only be used to offset capital gains.  By contrast, ordinary losses can offset ordinary income, providing a much bigger tax benefit.

Unfortunately, in 2013, the Tax Court determined in the Pilgrim’s Pride case that  abandonment losses should be treated as capital losses.  Many (including me) thought that the Tax Court’s decision was incorrect.  I’m happy to announce that yesterday, the Fifth Circuit agreed.  The Tax Court’s decision was overturned and once again, abandonment losses are treated as ordinary losses.


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