A. Partnership interests are not exchangeable
B. Partnerships can complete a 1031 exchange
C. Problems may occur when partners have different investment goals
i. Cash out of partnership
ii. Sell rather than exchange
iii. Solutions
1. Partnership dissolves under IRC Section 708
2. Partnership completes exchange; refinances property; distributes cash to
partners who do not want to participate in the exchange
3. Partnership completes exchange; reorganizes under co-tenancy ownership,
where two or more owners each hold an undivided fractional interest in
property; distributes property according to each co-tenant's pro-rata interest
4. Partnership reorganizes under co-tenancy ownership where each owner has
an undivided fractional interest in property; each co-owner pursues its
individual investment goals
a. Has the partner met the "held for investment" requirement?
5. A partnership may elect to submit a valid election under IRC Section 761(a)
to opt out of the application of Subchapter K
a. Must treat its partnership interests as interests in individual assets, as
distinguished from an interest in a partnership
b. Must be organized for investment purposes as opposed to business
purposes
c. Must not offer any auxiliary business services above and beyond those
customarily associated with the investment either directly or though an
agent
6. A taxpayer who disposes of property in a 1031 exchange and acquires
replacement property, which is then contributed to a partnership in exchange
for a partnership interest, may qualify for non-recognition treatment
Comments(2)