Partnership may change to LLC tax free

Article Abstract:

Unincorporated organizations can be considered as corporations or as partnerships for Federal tax purposes. Such organizations are treated as corporations if they manifest the characteristics of a corporation in terms of associates, the rationale of the business, the continuity of life, management centralization, limited liability and free transferability of interests. It was decided in Ltr Rul 9226035 that a partnership can be converted into a limited liability company (LLC) without losing its partnership status and without incurring adverse tax consequences. According to the ruling, the conversion to the LLC status was a mere extension of the partnership. The tax free nature of the process could be justified by the fact that there was nonrecognition of loss or gain by the partners.

Limited liability companies

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Bond given for partnership interest is an exchange

Article Abstract:

Rev. Rul. 95-24, 1995-13 IRB 4, states that a bond received in liquidation of a partnership interest takes the basis of the interest. This means that the deduction for amortization of a premium on the bond may be marked down. A particular case involves a partner having an interest with a basis of $100X and a fair market value (FMV) of $40X. The partner swapped this interest with a taxable bond also having an $40X FMV. At the time of transaction, the partnership did not have unrealized receivables or significantly appreciated inventory, and did not terminate after the barter. The partner incurred a capital loss of $60X because the bond was taken in exchange for the interest. The computation of the premium of the bond depends on the basis of the bond and the amount payable at maturity.

Public Finance Activities, Tax Administration, Securities, Securities taxes

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