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Abstract: 

Increasingly, financial assets and investments are acquired and held in entities such as limited partnerships, limited liability companies (LLCs), and series LLCs. These types of ownership arrangements can be attractive for a variety of reasons, such as ease of compliance, limited liability, and tax efficiency, and are particularly advantageous as compared to a corporate subsidiary if the entity is jointly owned. However, the owners of such entities often elect to treat them as partnerships for federal income tax purposes and the tax rules governing transfers of partnership interests are different—and sometimes more complex—than the rules for transfers of subsidiary stock. The capital gain and loss implications, the hot asset rule, and basis adjustments will all have to be mapped to determine which form of transaction is preferable. This article provides a basic overview of the tax consequences of different types of partnership transfers, with special consideration of issues applicable to financial organizations that own such interests.

Keywords: IRC Section 741; IRC Section 751; IRC Section 752; partnership sale or disposition; buyer tax issues; seller tax issues; capital loss recognition; “hot” assets; liquidating distributions

Affiliations:  1: Stanley, Esrey & Buckley LLP.