admin / January 25, 2019
One cannot exchange partnership interests, even if the partnerships own real estate. (Of course the partnership can do an exchange itself.) The same prohibition applies to interests in limited liability companies and corporations. But in the case of limited liability companies and partnerships, there are ways to structure ownership with multiple parties as co-tenancies, preserving the notion of individual ownership and avoiding partnership classification. There are special tax elections that certain partnerships and limited liability companies can make in order not to be treated as a such for income tax purposes (even if they are valid entities for state law purposes). There are ways of cashing out non-trading partners from a partnership to allow the trading partners to remain in the partnership and accomplish their sale. All of these transactions require careful structuring in advance of a transaction and reference should be made to Revenue Procedure 2002-22.
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