Moving a CA limited partnership to a different state

[paulspann]

I have a question about moving a CA limited partnership to another
state. I have a question based on the following facts:

1) CA LP wants to move to Nevada
2) All partners (GP & LP) are now NV residents as of 2006. Yes they
actually live there now.
3) General Partner has a negative capital account balance.
4) All Limited partners have positive capital account balances
5) Income source is not from CA anymore

Does the move to NV trigger any taxable event to the General partner
to restore his negative capital account balance when they dissolve
the CA LP with the state of CA??

This entity will continue to operate. However, in order to get CA to
stop requiring the $800 min tax, they will need to dissolve the
entity in CA.

Any advice or comments on this situation would be greatly
appreciated!!

Paul Spann, CPA
Diamond Bar

[Bees Knees]

The simple answer is no, there is no taxable event for federal tax purposes when one partnership converts into another partnership as long as each partner has the same ownership percentage and each partner’s share of liabilities are the same before and after. Unlike corporations, in general, a partnership distributing assets to its partners is not a taxable event, unless a partner gets cash in excess of basis.

The complicated answer is, you could have a shift in liabilities, depending on the differences in state law. If the general partner has a negative capital account, that means his share of liabilities in the partnership exceed his share of assets. A partner could experience a decrease in his or her basis in the partnership because recourse liabilities become nonrecourse liabilities upon conversion. If a decrease in a partner’s share of liabilities exceeds the partner’s basis, he or she must recognize gain on the excess.

I don’t know if that will happen in your case, but anytime you have a partner with basis deep into the liability side of the equation, you have to look at possible liability shifting issues.

[paulspann]

Thank you for your response. I am on the same page with you there. However, I do not share the balance sheet items in my post:

1) Checking account
2) Mortgage Note receivable
3) No liabilities

So in this situation would there be any taxable event on the move to another state away from CA??

[Bees Knees]

If there are no liabilities, how does the GP have a negative capital account?