This article closely examines the unwinding of the ceiling rule. Congress and partnership tax experts historically have assumed perfect unwinding of the ceiling rule on liquidation or sale of a partnership interest. However, this assumption glosses over a significantly more complicated reality. This article closely examines the history of section 704(c) and the interaction between the ceiling rule and the rules regarding sales and liquidations of partnership interests to reveal the extent to which the assumption does not hold. By debunking long-held assumptions about the perfect unwinding of the ceiling rule, this article displays that there is no reasonable justification to maintain the ceiling rule, or the accompanying complexity and distortion that the ceiling rule imposes on the partnership tax system.
Leigh Osofsky, Unwinding the Ceiling Rule, 34 Va. Tax Rev. 63 (2014).