Description
Owners of partnership interests frequently seek to sell or withdraw from a partnership through a cross-purchase with other owners or via cash redemption. Their economic considerations consist of cash, perhaps an installment obligation plus deemed relief of partnership debt. The client’s perception of the “net-after-tax” consideration received in selling a partnership interest after negotiating a term sheet or letter of intent may prove to be inflated and, in some instances, inflated substantially with hidden tax burdens. These “hidden” incremental tax costs to the partner selling part or all of a partnership interest may be sourced to "tax traps” within the partnership provisions pertaining to allocation of debt, cash and non-cash distributions and gain/loss characterization rules.
This program sets out the direct impacts of the sale or redemption to a withdrawing or exiting partner as well as to the partnership and remaining partners. It also highlights additional provisions that may change the timing and character of the gain, impacting non-selling partners.
Consideration will be given to the issuance and sale of profits interests for services, installment sale provisions and entity conversions. Some discussion time will be devoted to the intersecting provisions of the partnership audit rules, including the draconian “cease-to-exist” provision. Join tax expert Jerry August for a 90-minute analysis of:
- Sales and dispositions of partnership interests under Section 741
- Unrealized receivables and recapture amounts under Section 751
- Liability allocation rules to account for sales or redemptions under Section 752
- Redemption distribution rules under Sections 731 through 736
- Mixing bowl provisions under Sections 704(c)(1)(B) and 737 and disguised sales in Section 707
- Entity conversion issues related to a redemption or purchase of a partnership interest