![ordinary scrutiny ordinary scrutiny](https://www.nydailynews.com/resizer/qI34GJaNZ3hpvrPwbn8JGDPZ_bA=/1200x0/top/arc-anglerfish-arc2-prod-tronc.s3.amazonaws.com/public/ZNRO7AR7KQDDJZF3X4ZAJFMQMU.jpg)
The first issue in the Practice Unit focuses on identifying whether an ownership change has occurred at the partner level. The Practice Unit correctly notes that a partner may dispose of a partnership interest in various manners, such as through sale, exchange, gift, death, or abandonment. Issue One: Did an Ownership Change Occur ? Finally, IRS examiners are instructed to look for a filed Form 8308, Report of a Sale or Exchange of Certain Partnership Interests, with the Form 1065. In addition, IRS examiners are advised that they can determine whether an ownership change has occurred through a careful review of the Form 1065’s Schedule M-2.
![ordinary scrutiny ordinary scrutiny](https://climateemergencymanchester.net/wp-content/uploads/2020/06/Active-citizenship-toolkit-v1-1024x1024.png)
For example, the IRS examiner is instructed to review the Schedules K-1 issued to the partners to determine whether the partnership issued any Schedules K-1 marked “final” or whether capital accounts have been reduced to zero. The Practice Unit identifies various parts of the partnership return (Form 1065) that the IRS examiner should review to determine whether the sale of a partnership interest has occurred. Did the partnership have a Section 754 election in place? If so, did the partnership correctly compute the Section 743(b) adjustment?.Did the selling partner consider whether the partnership has any Section 1250 assets and treat any of the gain or loss on the sale of the partnership interest as being subject to tax at the unrecaptured Section 1250 gain tax rate?.
![ordinary scrutiny ordinary scrutiny](http://photos1.blogger.com/x/blogger/2862/372/400/642424/Justice_needed.jpg)
![ordinary scrutiny ordinary scrutiny](http://www.ruthintowncouncil.gov.uk/wp-content/uploads/2014/07/AB8A6685.jpg)
The competing interests of aggregate versus entity theories are ubiquitous in subchapter K of the Code.įor example, these competing interests can be seen when a partner sells his or her interest in a partnership. In these instances, federal tax law refers to such treatment as the “entity theory” of partnership taxation. For federal tax purposes, this is known as the “aggregate theory” of partnership taxation.īut, in many cases, subchapter K treats the partnership as a separate entity. In this manner, a partnership is not treated as a separate entity but instead is treated more as an aggregate of its partners. Under these complex rules, a partnership is generally not a taxable entity-rather, the items from the partnership flow through and are reported by the partners on their respective income tax returns.
ORDINARY SCRUTINY CODE
Subchapter K of the Internal Revenue Code (“ Code”) houses the partnership tax rules. Recently, on March 12, 2021, IRS LB&I issued a 50-page Practice Unit on the “Sale of a Partnership Interest.” This Insight discusses that Practice Unit. on tax issues.” A list of former Practice Units can be found here. It is a little known secret that IRS Large Business & International (“ LB&I”) issues “Practice Units” from time to time. Often, these Practice Units are worth a read because they “are developed through internal collaboration and serve as both job aids and training materials.