Giving partnership interest for services may be costly

Article Abstract:

The Tax Court, contradicting provisions of the Internal Revenue Code, has ruled that the granting of interests in the profits of a partnership in exchange for services rendered is a taxable event. The Tax Court ruled that, even though no interest in the capital of the partnership was transferred, the interest in the partnership's profits was taxable for fair market value (FMV) under Section 83. The decision of the Tax Court runs contrary to published IRS rulings. Taxpayers likely can avoid the recognition of a taxable event with strategies for distinguishing interests in partnership profits from the capital interests of a partnership, such as offsetting income recognition by allocating deductions to the provider of services, and by using phantom arrangements for transferring interests for services.

Cases, Laws, regulations and rules, Revenue, Tax courts

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Dual status partnership interests provide complexity along with planning opportunities

Article Abstract:

Ownership of both general and limited partner interests in a limited partnership has many tax consequences. The effect of such ownership on the dual partner's basis, amount at risk, capital account, and passive status of his shares of partnership income or loss is reviewed, and suggestions for turning potential problems into advantages are presented.

Finance, Limited partnership, Limited partnerships

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