Discussion:50% of Partnership Sold

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Discussion Forum Index --> Tax Questions --> 50% of Partnership Sold

Snooks (talk\|edits) said:	16 November 2005
In an 8 partner partnership, where 4 buy out the other 4, do we have to setup a totally new partnership with a new EIN? Also, will the change result in gain calculation for the 4 remaining partners who now equally own what originally was owned by the 8?

PGattoCPA (talk|edits) said:

17 November 2005

There is a technical termination of a partnership when within a 12-month period there is a sale or exchange of 50% or more of the total interest in partnership capital and profits (§708(b)(1)(B)).

The "old" partnership files a final return for the period starting with the first day of its tax year and ending on the day of the technical termination. The "new" partnership files an initial return for the period starting with the day after the day of the technical termination and ending on the last day of the "old" partnership's tax year. The "new" partnership has the same name and EIN as the "old" partnership.

Using the situation you describe above as an example, using 11/16/05 as the sale date and assuming the p'ship had a calendar year for its tax year: The p'ship files a final return encompassing the short period 01/01/05 - 11/16/05 and issues 8 K-1s. The p'ship files an initial tax return encompassing the short period 11/17/05 - 12/31/05 using the same name and EIN and issues 4 K-1s. Don't forget about state tax returns. The same rules apply.

You do not have a gain calculation when you buy something; you have one when you sell something. For tax basis purposes, the 4 remaining partners need to keep track of their original p'ship interests separately from their additional p'ship interests they just purchased. (The 4 selling partners have the gain / loss calculation.)

Additionally, the p'ship rules recently changed so there will be a forced inside basis step-up or step-down. See §§743 and §754.

Lizs2000 (talk\|edits) said:	19 December 2005
would you give me the source for information regarding how the new partnership can use the same ein and partnership name as the old partnership, thanks.

PGattoCPA (talk\|edits) said:	19 December 2005
Regulations §§1.708-1(b)(4)(i)-(iii) & 301.6109-1(d)(2)(iii)

LYoung (talk\|edits) said:	13 May 2008
I have a partnership (LLC) with 2 members. One member left the LLC end of March. And I'm informed there will be a new member joining as of June. Do I file 1065 for January to March, Sch C for April to May, and another 1065 for June to December? And do I check final return for the first Form 1065? Thanks in advance for your help.