Partnership dead or not

[TAX4US]

Father and son have a very small partnership, about 20k income each year for many years. Dad decides he is to old to work it anymore and gives his half to sons wife.(no assets involved except a very small bank balance of $1500.00. Question becomes Is this a terminated partnership? Sons wife will do the work that dad was doing. This was all done on 12-31-2015.

I would think that if this is terminated, New partnership must get new FEIN or can they choose to operate under a joint venture with 2 schedules C's going forward? What do you think would be best? NO Employees.

[Burke]

Old partnership has terminated. File final 1065 for 2015. If H&W form an LLC or LLP, need new EIN. Otherwise, might consider joint venture route if allowed.

[BHoffman]

It's a technical termination, so you just check the appropriate boxes and keep the same EIN.

[BHoffman]

Ooops. Burke is correct that since the partnership interest was gifted, that doesn't qualify as a technical termination. My bad.

[TAX4US]

If DIL pays him for his capital account would this be considered a FMV exchange. The partnership has had very small profits during it run due to the fact that son did 90% of the work and took guaranteed payments during these years. Current year even shows a very small loss. There would be no real value of the ptrship if son quit. Dad took very little income from it during the last 10 years or so.

If this is a termination on the last day of the year it would marked as final and then next year (2016)would be marked as initial under termination?

BTW dad hasn't done much work in the ptrship since he was hurt several years ago. Dad is 72 and income comes from ss and pension not that this would make a difference.

Is there a better way to handle this? Thanks for all the guidance

[TAXNJ]

Real challenge

As you may know, Partnerships is one of the most complex areas especially partnership tax law.


Realizing you cannot present all your scenario issues and facts in one post, in addition to other reply posts, you might consider the following references:

CFR 1.708-1 Continuation of partnership
In general, the termination of a partnership or an LLC classified as a partnership may happen if there is a sale or exchange of 50% or more of the total interests in the LLC's capital and profits within a 12-month period (Sec. 708(b)(1)(B


Reference - Sec. 708 specify certain transactions that are deemed not to be sales or exchanges, including (Regs. Sec. 1.708-1(b)(2)): for example, A disposition of an LLC interest by gift, bequest, or inheritance


Also reference: IRS PUB 541

Hopefully this helps toward your research.

After your research and you are still in doubt, consider consulting with a partnership expert