Tax Flotsam of Partnership Mergers and Divisions

Abstract

Partnership mergers and divisions occur regularly as the ownership of partnerships changes through various types of transactions. This article reviews the general rules governing partnerships mergers and divisions, and then it proceeds to examine numerous other tax issues that arise and should be accounted for as part of any merger or division transaction, including determining the holding periods of partnership assets and interests in partnerships, section 704(c), the anti-mixing bowl rules, possible application of the disguise-sale rules, recapture considerations, effects of changes in partners’ shares of partnership liabilities, accounting for section 751 hot assets, issues that arise if property is qualified-opportunity-zone property, matters related to the BBA audit rules, and potential gift and estate tax consequences. The article will make a significant desk reference for anyone advising entities taxed as partnerships or their members.

Keywords: partnership mergers, partnership divisions, section704(c), disguised sale of partnership interests, anti-mixing bowl rules, qualified opportunity zone