Question

The ABCDE partnership had the following occur:

11/30/2014 – A died and left her 20% interest to G.

1/1/2015 – B gave his interest to H. The partnership does not have any debt.

3/1/2015 – C contributed her 20% interest to the C corporation in a tax-free exchange.

6/1/2015 – D sold his 20% interest to E.

12/31/2015 – A new partner, F, was allowed into the partnership with a 1/6 interest in capital and profits.

Which of these constitutes a sale or exchange of a partnership interest under Code Section 708, and is there an actual termination of the partnership for tax purposes?

Answer 1

as per Section 708, a series of transfers of capital & profits are considered as sale or exchange of partnership interest if the transfer occurs of more than 50% of capital & profits within 12 consecutive months. In the given case, within 12 months from 30th Nov 2014 to 30th Nov 2015. A, B & C has collectively transferred 60% of the interest in partnership and therefore for the purposes of section 708, all the three transactions will constitute a sale or exchange of partnership.