Now You See it, Now You Don't: Exiting a Partnership and Making Gain Disappear

16 Pages Posted: 7 Apr 2009  

Howard E Abrams

University of San Diego School of Law

Date Written: April 7, 2009

Abstract

In this Article, three methods of exiting are partnership are examined. Each exit strategy offers significant tax advantages to the nonexiting partners. In two of the exit strategies, well-known defects in Subchapter K are exploited, and I conclude that the strategies cannot be attacked successfully by the government using either the detailed rules of Subchapter K or by resort to the partnership anti-abuse rules. However, the third of the exit strategies seeks to exploit language in a treasury regulation in a manner plainly not contemplated by the drafters and which yields a result inconsistent with the structure of subchapter K. I conclude that this exit strategy can be attacked successfully by the government. The two successful strategies show that in many cases the exit of a partner can be used to defer significant amounts of income.

Keywords: taxation, partnership taxation, federal income tax

JEL Classification: H20, H25, K34

Suggested Citation

Abrams, Howard E, Now You See it, Now You Don't: Exiting a Partnership and Making Gain Disappear (April 7, 2009). Emory Public Law Research Paper No. 9-58. Available at SSRN: https://ssrn.com/abstract=1374125 or http://dx.doi.org/10.2139/ssrn.1374125

Howard E. Abrams (Contact Author)

University of San Diego School of Law ( email )

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