Options to Acquire Partnership Interests: Can the Tax Law Keep Pace?

23 Pages Posted: 16 Apr 2009

Date Written: Winter 2003


It has become increasingly common for partnerships to issue options that give the holder the right to acquire an interest in the partnership for a set price. The holder of the option will exercise it if he feels that the partnership interest to be acquired is worth more than the exercise price. There is a dearth of authority on the federal tax treatment of option transactions, and the Service has recently asked for guidance from the tax bar as to what approach it should take. This article focuses on one piece of the partnership option puzzle, options to acquire partnership interests where the option is received in exchange for services (services option). While the term "partnership" is used through the article, the reader is asked to recall that for federal income tax purposes, it normally includes limited liability companies provided they have more than one member.

Keywords: partnerships, options, federal tax treatment, IRS, Internal Revenue Service, services option, limited liability companies

JEL Classification: K29, K34, H25, H29

Suggested Citation

Schwidetzky, Walter D., Options to Acquire Partnership Interests: Can the Tax Law Keep Pace? (Winter 2003). Journal Taxation of Investments, Vol. 20, No. 2, 2003, Available at SSRN: https://ssrn.com/abstract=1383968

Walter D. Schwidetzky (Contact Author)

University of Baltimore - School of Law ( email )

1420 N. Charles Street
Baltimore, MD 21218
United States
(410) 837-4410 (Phone)
(410) 837-4492 (Fax)

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