Payoffs Using Appreciated Stocks - Are You Guyz Sure?
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Payoffs Using Appreciated Stocks - Are You Guyz Sure? Jerry and I have constantly advocated using
appreciated stocks to pay off departing members. Recently, we were
asked...
An accountant in our club believes
there may be tax liabilities to a partnership when transfering securties to a
departing member (not selling stock, just transfering
shares).
It is my understanding, although I'm by
no means an accountant, that the club and its remaining partners incur no tax
liability when the club chooses to transfer shares to a departing
member.
Who is right, and where might we look
to find the actual IRS rules dealing with partnerships and transferred
securities?
There has been a great deal of confusion about
marketable securities. Under Partnership Distributions (Marketable
securities treated as money), of Publication 541, any confusion is
resolved:
Generally, a marketable security
distributed to a partner is treated as money in determining whether gain is
recognized on the distribution. The treatment, however, does not generally
apply if . . . an investment partnership made the
distribution to an eligible partner.
Section 731 of the IRS code defines
investment partnership and eligible
partners.
The term ''investment partnership''
means any partnership which has never been engaged in a trade or business and
substantially all of the assets (by value) of which have always consisted of
-
(I) money, (II) stock in a corporation, (III) notes, bonds, debentures, or other evidences of indebtedness ........
An eligible partner is any partner who
contributed only cash, or shares of stock in a corporation, or other financial
instruments, to the partnership.
So, yes, we are sure. A partnership does not
realize taxable income when it distributes appreciated stocks to a member.
Furthermore, the partner does not realize taxable income on the stocks
distributed until the stocks are sold.
For more details of the advantages of using appreciated
stocks for partner payoffs, see..........
Member Withdrawals - payout options
for your club.
http://www.bivio.com/trez_talk/mail-msg?t=2984700003 Thanks for using bivio, and for submitting a question that could be of interest to a lot of people. |
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