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Reporting Full and Partial Redemptions of Partnership and LLC Interests

IRC 754 Elections, Section 736(b) Payments, Character and Timing of Gain, Installment Sales, and More

Recording of a 110-minute CPE webinar with Q&A

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Conducted on Tuesday, September 19, 2017

Recorded event now available

This course will provide tax advisers and compliance professionals with specific and practical guidance to navigating the tax rules that apply to the redemption of LLC or partnership interests. The panel will discuss both partial and complete redemptions, outline available elections, and identify common pitfalls and uncertainties in reporting a partnership buyout of a departing partner.

Description

Redemption of a partner’s ownership interest, either total or partial, can create tax challenges for tax advisers to both the partner and the entity and can often have unanticipated tax consequences.

The structure of a full redemption of a partner’s full partnership interest in the partnership in exchange for a liquidating distribution can have significant implications for both the departing partner, and the remaining partners.

Redemption transactions receive different treatment than sales of partnership interests in application of the Section 751 “hot asset” rules and basis recovery in installment sale transactions. Additionally, the Section 754 election is available in a redemption transaction, but the election is made using the Section 734 rules instead of referring to Section 743.

When the partnership has debt, or when the redeeming partner has previously received a distribution financed by debt, the gain and loss calculations plus any required deferrals become more complex. Tax advisers must apply the rules to a partner’s specific circumstances to avoid costly tax mistakes.

Listen as our experienced panel provides a thorough and practical guide to the tax challenges of reporting partnership redemptions.

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Outline

  1. Redemption transactions and Section 736(b) payments
  2. Treatment of Section 751 “hot assets” in redemption transactions
  3. Section 736(a) payments to general partners
  4. Installment sale treatment of partnership redemptions
  5. Liquidating distributions of property rather than cash
  6. Section 754 elections in effect or not in effect
  7. Stuffing allocations before redemption
  8. Disguised sale risks

Benefits

The panel will discuss these and other important topics:

  • How the Section 754 election rules function in a redemption as opposed to a sale
  • Applying the Section 751 “hot asset” rules to the redeeming partner
  • Differences in character of gain between redemption and other sale transactions
  • Risk of technical termination and application of the disguised sale rules
  • Filing requirements for a partnership engaged in a redemption on an installment basis
  • How Section 736(b) applies to payments to the redeeming partner
  • How distributions of partnership property including deemed distributions under Section 752 are treated

Faculty

Spiro, Michael P.
Michael P. Spiro
Partner
Finn Dixon & Herling

Mr. Spiro chairs the firm's Tax group, where his practice focuses on providing federal and state tax...  |  Read More

Jordan L. Fieldstein
Jordan L. Fieldstein
Finn Dixon & Herling

Ms. Fieldstein focuses her practice on tax, corporate and business law matters, with an emphasis on general...  |  Read More