Discussion:LLC Interests into TIC's
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Discussion Forum Index --> Tax Questions --> LLC Interests into TIC's
| 28 July 2006 | |
| I have a client in an LLC which owns a couple of commercial buildings with 2 other members. They will be selling the buildings soon, no sale has been initiated, and my client wants to 1031 thier proceeds.
Is the order to put distribute the buildings into TIC's for each member according to their percentage, close the LLC, and then sell the buildings? Then each owner can invest as they wish. There are no tax consequences are there? | |
| 29 July 2006 | |
| The transaction you are describing was rejected by the Internal Revenue Service in Chase v. Commissioner, 92 TC 874. The Tax Court held that the substance over form doctrine applied and the transaction should be characterized as a sale by the partnership and a subsequent purchase by the partners.
In addition, Chase was a case involving a 1980 tax year, which pre-dates the 1031(a)(2)(D) prohibition of exchanges of partnership interests by four years. Presumably, if the Chase case were decided under current law, the Tax Court would now also cite 1031(a)(2)(D) in denying 1031 treatment to this transaction. | |
| 1 August 2006 | |
| CCouldn't the co-tenants can make an election under Section 761 (a) to be excluded from the application of the partnership tax provisions to resolve the issue of whether they are partners rather than co-tenants for tax purposes. Assuming everything else is legit? | |
| 1 August 2006 | |
| In order to elect out of Subchapter K, the property must be owned by co-owners. Property owned by a limited partnership or LLC is not co-owned by the owners of the limited partnership or LLC. Instead, such property is owned directly by the business entity. See Revenue Ruling 2004-86. | |
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