## Facts

- T. L. Helmer and George Helmer were equal partners in a cattle-business partnership.
- The partnership owned property that it agreed could be acquired by a third party through an option arrangement.
- The partnership entered into an option agreement under which the third party received an option to purchase the partnership’s property.
- In exchange for the option, the third party paid funds at the outset; if the option were exercised, the funds would be applied against the purchase price.
- The option agreement did not require the partnership to repay the funds if the option was not exercised.
- The option agreement also did not require the partnership to provide services or other performance in return for keeping the funds if the option lapsed.
- The third party transferred the option funds to the Helmers (economically as owners of the partnership interest), but later did not exercise the option to buy the property.
- The total funds received in connection with the option exceeded the Helmers’ original adjusted bases in their partnership interests.
- The Helmers took the position that the funds did not produce taxable gain because receiving them created a partnership “liability” that increased their outside bases under I.R.C. § 752.
- The Commissioner determined deficiencies, asserting that the option funds created no partnership liability under § 752 and that the Helmers had taxable gain to the extent the funds exceeded their bases.

## Issues

1. Whether the option-related funds received in connection with an option to purchase partnership property created a “liability” of the partnership within the meaning of I.R.C. § 752 that increased the partners’ outside bases.
2. If no § 752 liability arose, whether the partners had to recognize taxable gain to the extent the option funds exceeded their adjusted bases in their partnership interests.

## Decision

- The court held that the option-related funds did not create a partnership liability under I.R.C. § 752 because the partnership had no enforceable obligation to repay the funds or otherwise to perform if the option was not exercised.
- Because there was no partnership liability, the Helmers’ outside bases were not increased under § 752 by reason of receiving the option funds.
- The court sustained the Commissioner’s determination that the Helmers recognized taxable gain to the extent the option funds exceeded their adjusted bases in their partnership interests.

## Legal Principles

- For purposes of I.R.C. § 752, a partner’s outside basis increases only by the partner’s share of a partnership “liability,” meaning an obligation that can require the partnership to make a payment (or otherwise satisfy an enforceable duty).
- Payments received under an option agreement do not create a § 752 liability when the partnership has no duty to repay the payments if the option is not exercised.
- A contingent or speculative economic possibility, without a present legally enforceable repayment obligation, is not treated as a partnership liability for § 752.
- When partners receive payments tied to partnership property and those payments exceed the partners’ adjusted bases, the excess is taxable gain unless a valid basis-increasing rule applies.

## Conclusion

In Helmer, the Tax Court rejected the partners’ attempt to treat option payments as basis-increasing partnership liabilities under § 752 because the partnership had no obligation to repay the funds or provide services if the option lapsed; with no § 752 basis increase, the partners were required to recognize gain to the extent the option payments exceeded their adjusted bases in their partnership interests.


Helmer v. Commissioner, 34 T.C.M. 727, T.C. Memo. 1975-160 (1975)