Partnership Terminations: Mastering Section 708

The tax treatment of a partnership termination is often challenging, especially when the termination is involuntary, whether due to insolvency or other cessation of operations, or to a “technical termination” arising from sales of 50% or more of the total partnership interests. Tax advisers responsible for preparing partnership tax returns need to have a practical understanding of the rules for reporting these involuntary terminations.

A partnership that undergoes a technical termination is deemed to have transferred its assets and liabilities from the “old” or terminated partnership to a deemed new partnership in exchange for an interest in that new partnership. The Treasury regulations governing Section 708 require technically terminated partnerships to file two separate short-year tax returns; the date of the technical termination and deemed transaction is the closing date of the legacy partnership and the opening date of the tax year for the new entity.

Section 708 technical terminations do provide partnerships the opportunity of deciding whether to continue certain irrevocable elections in the new entity. The new partnership may make a Section 754 election, or not, even if the prior partnership had made the election.

Listen as our experienced panel provides practical guidance on structuring partnership agreements and monitoring operations to avoid the costly consequence of a partnership technical termination.

1. Identifying technical termination events under Section 708
2. Deemed termination and transfer to new partnership
3. Status of irrevocable elections made by previous partnership
4. Short-year filing requirements for terminated and successor partnership
   1. Basis in assets subject to 743(b) adjustment in terminated partnership
   2. Penalties for failure to file
   3. Capital account carryover
   4. Reporting new elections

The panel will discuss these and other important issues:

• Short-year filing requirements for partnerships subject to technical termination rules
• Amortization of organizational or startup costs incurred after the ownership change event that caused the technical termination
• Evaluating whether to make a Section 754 election for “new” partnership after technical termination
• Basis calculations on assets in new partnership after a Section 708 termination
• Filing requirements for other involuntary partnership terminations

Learning Objectives

After completing this course, you will be able to:

• Identify events that trigger a technical termination of a partnership under Section 708
• Recognize the short-year filing requirements for technically terminated partnerships
• Determine the appropriate basis and capital account carryover treatment from terminated partnership to deemed new partnerships
• Decide under what circumstances successor partnerships to technically terminated partnerships should make new Section 754 elections
• Discern amortization opportunities and reporting treatment for organizational or other amortizable costs occurring as a result of the termination event

• 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 public firm experience at mid-level within the organization, preparing complex tax forms and schedules, supervising other preparers/accountants. Specific knowledge and understanding of partnership structure, operating agreements and liquidation, including partner capital accounts, allocation and distributions, and Section 754 election rules; familiarity with the technical termination rules of Section 708; familiarity with short year tax return preparation.

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).