## Facts

- George Edward Quick was a 50% partner in an architectural and engineering partnership.
- The partnership stopped active business in 1957 but continued to exist to collect substantial accounts receivable for prior services.
- The accounts receivable had a zero income tax basis but significant value.
- Quick died on January 23, 1960; his partnership interest passed to his estate and later to an inter vivos trust, which became the transferee partner.
- The partnership made a § 754 election on its 1960 return to adjust inside basis under §§ 743 and 755 and treated the receivables’ basis as increased, reducing taxable income upon later collections.
- The Commissioner asserted that the receivables were income in respect of a decedent (IRD) under § 691(a), so § 1014(c) barred any basis step-up for those receivables, and the § 754 election could not increase their basis.
- The Commissioner determined deficiencies against the trust for its fiscal year ending September 30, 1966, and against the estate for 1961–1964, with the trust liable as transferee.
- The Commissioner also invoked the six-year limitations period under § 6501(e)(1) for 1961 based on an alleged omission of more than 25% of gross income.
- The material facts were stipulated; the dispute turned on legal characterization and statutory interaction.

## Issues

1. Whether the partnership’s accounts receivable attributable to pre-death services constituted IRD under § 691(a) when the decedent’s interest passed to an estate/trust as transferee partner.
2. If the receivables were IRD, whether § 1014(c) barred including their fair market value in the date-of-death basis of the partnership interest and prevented any § 743(b)/§ 754 basis increase for those receivables.
3. Whether, for 1961, the estate’s return (considered with the partnership return) adequately disclosed gross income so that § 6501(e)(1)’s six-year period did not apply and assessment was time-barred.

## Decision

- The Tax Court held that the right to receive proceeds from collecting the partnership accounts receivable was part of the partnership interest and constituted IRD under § 691(a).
- The court held that § 1014(c) prevented any stepped-up basis attributable to the receivables and that a § 754 election could not increase the receivables’ zero basis.
- The court sustained the Commissioner’s substantive deficiency determinations for years not barred by limitations.
- On limitations, the court held that 1961 was barred because the estate’s return, read with the partnership return, adequately disclosed the partnership’s gross income; § 6501(e)(1) did not extend the assessment period for that year.

## Legal Principles

- Rights to collect amounts earned by a decedent but not received before death may constitute IRD under § 691(a), even when the rights are held through a partnership interest.
- Section 1014(c) excludes IRD from the basis step-up otherwise provided by § 1014(a).
- A partnership § 754 election and the related § 743(b) adjustment cannot override § 1014(c)’s denial of a basis increase for IRD items; IRD receivables remain zero basis when collected by successors.
- Under § 6501(e)(1), the six-year assessment period for large omissions does not apply if the return, including information available through a related partnership return, adequately discloses the nature and amount of income so the Commissioner has a sufficient basis to identify the item.

## Conclusion

The Tax Court treated the partnership’s pre-death accounts receivable as IRD, denying any basis increase for those receivables under § 1014(c) and rejecting use of a § 754 election to create an inside-basis step-up; however, it held the 1961 assessment time-barred because the returns provided adequate disclosure to prevent application of § 6501(e)(1)’s six-year limitations period.


Quick’s Tr. v. Comm’r, 54 T.C. 1336 (1970)