For months on end, news reports and politicians have repeated ad infinitum the major provisions of the Tax Cuts and Jobs Act of 2017 (the “Act”), such as the reductions in corporate and individual income tax rates and the deductions available to pass through entities. But many provisions in the law that have received much less publicity are nonetheless extremely important to the millions of people and businesses such provisions affect. In this series, “Navigating Tax Reform,” I will explore some of these obscure provisions, and their implications for businesses and individuals. My intention is to arm you with information and resources so you can make the best decisions possible regarding your tax strategy.
Termination of Partnerships
The Act changes rules regarding automatic terminations of partnerships under certain circumstances.
Under pre-Act law, if 50% or more of the total interests in a partnership’s partnership capital and profits are sold or exchanged during a 12-month period, the partnership may be terminated by action of law. Such a termination does not necessarily end the partnership’s existence, but generally does result in the closing of the partnership’s tax year, the cessation of partnership level elections and restarting the partnership’s depreciation recovery periods.
The Act revoked the technical termination rules. Therefore, for tax years beginning after December 31, 2017, a partnership will be treated as continuing even if more than 50% of the total interests in the partnership’s capital and profits are sold or exchanged. This change in law reduces the administrative hassles of selling partnership interests and makes such transactions more attractive.
About the Author
Eric R. Benson is a business law attorney with Ireland Stapleton Pryor & Pascoe. His practice focuses on advising businesses on legal matters throughout the life cycle of the business. He also advises nonprofit organizations regarding formation, qualification for tax exempt status, mergers and acquisitions, and general matters related to their operations. You can reach him at 303-628-3605 or ebenson@irelandstapleton.com.
What is written here is intended as general information, and is not to be construed as legal advice. If legal advice is needed, you should consult an attorney.