LLC and Partnership Purchases: Entity Interests vs. Asset Sales, Basis Adjustments, Elections, Tax Reporting

The sale of an LLC or other entity taxed as a partnership entails both negotiation and reporting challenges for tax advisers and is complicated by differing priorities of buyer and seller, including whether to structure the transaction as an asset sale vs. the sale of partnership interests. This is more difficult due to the IRS partnership audit rules.

Under the current rules, IRS can assert tax adjustments at the partnership level. Advisers to purchasers must assess a target's potential prior tax exposure as part of a pre-purchase diligence review.

Partnership transfers also create tax reporting and calculation challenges for advisers. While buyers may desire a basis step-up, tax advisers must determine when such an election is appropriate.

Another complexity is identifying and reporting ordinary gain from the sale of Section 751 "hot assets" in a partnership transfer. Tax advisers must thoroughly understand the reporting requirements of a partnership interest or asset transfer.

Listen as our experienced panel provides a practical guide to the tax implications of selling assets vs. interest in transferring a partnership or LLC business.

1. Seller's considerations in negotiating the transaction
2. Buyer's considerations in negotiating the transaction
3. Impact of the IRS partnership audit regulations
4. Tax reporting issues and basis adjustment elections
   • Section 754 election due to transfer or distribution
   • Section 743(b) adjustments
   • Section 734(a) adjustments

The panel will discuss these and other relevant topics:

• New IRS partnership audit rules and effect on a buyer’s strategy in purchasing a partnership interest or assets
• When an entity sale would benefit a purchaser
• Determining the character of gain or loss upon a transfer
• Holding period and basis rules for transfers of partial interests
• Allocating purchase price

Learning Objectives

After completing this course, you will be able to:

• Identify the critical tax rules that apply to the sale of partnership or LLC interests
• Ascertain when the "hot asset" rules apply
• Decide whether it is beneficial to make an IRC 754 election and the impact of that election on basis adjustments
• Distinguish between the basis adjustment provisions of IRC Sections 734 and 743
• Establish the most efficient means of structuring a partnership sale to achieve maximum tax benefits

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite: Three years+ business or other experience preparing complex tax forms and schedules. Specific knowledge and understanding of partnership and LLC structure and agreements, including tax basis, holding periods and character of gain or loss; familiarity with hot asset rules, liquidating distributions, the basis adjustment rules and sales or transfers of partner or LLC member interests.

Strafford Publications, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of Accountancy have final authority on the acceptance of individual courses for CPE Credits. Complaints regarding registered sponsons may be submitted to NASBA through its website: www.nasbaregistry.org.

IRS Approved Provider

Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).