What If You Want To 1031 Exchange and Your Partner Just Wants Cash?

DISSOLVING PARTNERSHIPS/LLCS AT THE TIME OF AN EXCHANGE

Scenario: The partnership/LLC is selling a property. Some partners want to exchange. Others want their cash. This has always been a challenging scenario made more challenging due to recent developments. As Sellers consider the sale of partnership and LLC assets they need to be aware of two new disclosure provisions.

First, the IRS is planning to study these "drop and swap" exchanges, as these are often called. To identify these exchanges the IRS has proposed adding three new questions to the 2008 partnership returns causing the Seller to disclose the fact that an asset was distributed out of the partnership/LLC at the time of an exchange.

Second, in certain situations a drop and swap is believed to be an aggressive tax strategy. (IRC §1031 prohibits the exchange of "partnership" interests.) A tax preparer signing a tax return containing a high risk drop and swap will have to attach a specific disclosure of the high risk drop and swap to the tax return. If the tax preparer fails to disclose they will personally be subject to tax preparer penalties.If you are considering a drop and swap you must consult with your tax and legal advisors well in advance of listing the property for sale.

Call Denice for more information 360-816-9202 http://www.deniceneddo.com/