Under IRC section 708(b)(1)(B), a “technical termination” of a partnership occurs when, within any 12-month period, there is a sale or exchange of 50% or more of the total interest in partnership capital and profits. A technical termination gives rise to a deemed contribution of all the partnership’s assets and liabilities to a new partnership in exchange for an interest in the new partnership, followed by a deemed distribution of interests in the new partnership to the purchasing partners and the other remaining partners. As a result of a technical termination, some of the tax attributes of the old partnership can terminate, the partnership’s tax year will close, partnership-level elections will generally cease to apply, and the partnership depreciation recovery periods will restart.
Under recent legislation, for partnership tax years beginning after December 31, 2017, the rule under IRC section 708(b)(1)(B) providing for technical termination of a partnership is repealed. However, this repeal does not change the law set forth in IRC section 708(b)(1)(A) that a partnership is considered as terminated if no part of any business, financial operation, or venture of the partnership continues to be carried on by any of its partners in a partnership.
Please contact Jeff Senney at 937-223-1130 or Jsenney@pselaw.com if you would like to discuss any aspect of federal income tax law.