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Sale of partnership interest to self

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    Sale of partnership interest to self

    Client is an individual and a 50/50 partner with his mother in Partnership A. That partnership A owns an interest in another partnership B. If the client who is an individual wants to sell the interest of Partnership A in Partnership B to himself what are the tax consequences. The end result is that instead of Partnership A owning an interest in Partnership B, he will own that interest in Partnership B.

    #2
    Is he currently one of the partners in Partnership B?

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      #3
      He himself is not a partner in Partnership B but Partnership A is a partner in Partnership B and he is a partner in Partnership A

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        #4
        What about his mother? What does she want? What does their partnership agreement say about selling an interest in B?

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          #5
          The end result is that both the client and his mother will own the interest in partnership B. So to restate Client and his mother own an interest in Partnership A which in turn owns a 10% interest in Partnership B. The end result will be that both Client and mother want to own the same interest in Parnership B as before except that they want to own it individually rather than through Partnership A.

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            #6
            The way I understand this transaction, is that Partnership A will sell its interest in Partnership B (10%) to mother and your client individually. So each of these individuals will then own a 5% interest in Partnership B, and Partnership A will no longer own its interest in Partnership B. It is a sales transaction for FMV, whatever that may be. So it will be treated as a capital gain on the Partnership A return, and since neither partner's interest is more than 50%, the related party rules should not apply in this instance. The gain will pass through to them on their K-1's. I am assuming there are other assets in Partnership A and that it will not terminate. Do you agree? As Lion says, you need to review both partnership agreements as to what they say about sale of interests. Your title and posts indicate you are looking at it as a "sale to self" but the partnerships are separate entities from the individuals in them.. Are you thinking it will be a capital loss transaction?
            Last edited by Burke; 08-18-2019, 01:56 PM.

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