Stephen L. Robison
J.D., LL.M
Tax and Business
|
|
Exchanging Partnership Assets in Section 1031 Exchanges
Problem: A Partnership currently owns property to be sold. Some of the partners wish to treat the sale as a tax deferred exchange and to re-invest the proceeds into a like-kind property. Some of the other partners wish to cash out of their investment and not acquire additional property or, in the alternative, simply part company and/or invest the proceeds on their own. The Partners come to you and ask for your advice.
Solutions: Which of the following solutions will be treated as a valid Section 1031 Exchange?
- Distribution of the property via deed to each of the partners as an undivided interest, tenancy in common prior to the sale and the Section 1031 Exchange
- Distribution of the property via deed to be sold as tenants in common followed by a purchase of the tenancy in common interest by one of the original parties
- Distribution of the property via deed to each of the partners as an undivided tenancy in common interest prior to the sale and the Section 1031 Exchange; enter into a TIC agreement and elect not to be treated as a partnership under Section 761
- Distribution of the property via deed to each of the partners as an undivided tenancy in common interest prior to the sale and the Section 1031 Exchange; enter into a TIC agreement and elect not to be treated as a partnership under Section 761 and refinance the debt
- Division of the Partnership between the 2 groups followed by a sale and Section 1031 Exchange
- Redemption of some of the Partners before or after the sale and the Section 1031 Exchange
- Purchase of the Partnership interests of the withdrawing Partners before or after the sale and the Section 1031 Exchange
- Treat the sale as a Section 1031 Exchange by the partnership and acquire various properties at the direction of the partners followed by a property distribution after the exchange
- Allocation of gain to non-exchanging partners in a Section 1031 Exchange
Issues: How are the above-mentioned transactions impacted by the following?
- Continuity of business enterprise doctrine
- Step transaction doctrine
- Intent to hold the property for investment
- Status as a tax partnership versus tenancy in common
- Proximity of the exchange to the above-mentioned transactions
- The effects of partnership terminations on pending exchanges
- Impact of Civil Tax Penalties on Advisors and Circular 230
Join our ongoing discussion of this issue in the month of June at Linkedin: http://www.linkedin.com/in/steverobisontaxman
Steve Robison is a Board Certified Tax Attorney. Through his company, Strategic Property Exchanges, LLC, he has assisted Advisors and Property Owners successfully navigate Section 1031 Exchanges of their Business or Personal Assets with the lowest possible tax impact and the greatest value for the parties involved over the past 18 years! |
|
