Discussion:LLC-Partnership & New Intangible
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Discussion Forum Index --> Basic Tax Questions --> LLC-Partnership & New Intangible
Discussion Forum Index --> Tax Questions --> LLC-Partnership & New Intangible
| 6 November 2009 | |
| Can I set up and amortize an intangible created from the purchase of a partnership? Previous partnership (husband & wife) was sold in entirety to a new group (24 individuals) resulting in a Sec 708(b)(1)(B) termination. It was an arm's length transaction, unrelated parties. There was no real estate, no inventory or unrealized receivables. Company is a business (not an investment company. Capital accounts of prev owners was only $1247 (couple of small assets & a trademark intangible). Partnership was sold for $75,000; value of business is the information base (books & records) developed by the business.
I think it should be able to be amortized ($73,753). The old partnership did not have a Sec. 743 election in effect, but I don't think this will be subject to anti-churning rules. Does anyone have any advice? Is there any other election that the new partnership should make in regard to this new intangible. And would this be considered a 'basis adjustment'? If so, can the new partnership make a 754 election for an 'optional basis adjustment' for it? Any help would be greatly appreciated!!! I am blue in the face trying to figure it out. | |
| 6 November 2009 | |
| It sounds like the amount paid is largely a section 197 intangible, which is amortized ratably over 15 years. IRC ยง197(d)(1)(C)(ii) says that a section 197 intangible includes "business books and records, operating systems, or any other information base (including lists or other information with respect to current or prospective customers)" | |
| 7 November 2009 | |
| And as another recent thread has discussed, there does have to be a 754 election in order to make any change in the assets from the prior carried over basis amounts. The 754 election mechanics restate all assets on the books to the purchase price paid and any excess is a 197 intangible as Dave already said. Without the 754 election all you have is a larger outside basis than inside basis and no tax deduction for that value of intangibles paid. | |
| 7 November 2009 | |
| Considering the lack of assets could the partnership be easily (24 new owners) really liquidated? The asset(s) would then get a step up in basis to partner' basis. Then contribute assets to a new LLC or other entity. And is this procedure worth it for the $5,000 annual deduction or will the partnership interest/assets be sold again in a few years.
Could the IRS negate this through the step transaction doctrine, or would that be inapplicable since the taxpayer is merely changing entities? | |
| 9 November 2009 | |
| MWPXYZ- Frankly it would have been a lot simpler if it had been (liquidated and an entirely new LLC-ptrship set up). Actually, I'm going into this backwards.... Purchase/termination actually occured 1-1-07 and another CPA prep'd the 2007 return (one only, he didn't follow Sec 708). I was contacted to do their 2008 return and found multiple serious errors/omissions in the 2007 return. The entire thing was a mess, every single section required correction & the K-1's omitted 2 Members & included someone who didn't join the ptrship til 2008. There were no 8594's issued either.
I think I'll go ahead & file a Sec 754 election with the 'new' ptrship return for treatment under Sec 743. There really needs to be clarification of these rules and some more specific guidance. Does anyone know who is required to make the election? I think the regs say it has to be in effect for the year of the transfer (including extensions), but that's all. Does that mean terminating ptrship return or new one? I've just been reading the posts to Hammercpa regarding a Ptrship sale almost identical to mine which has been good. Will ck back there & see if I can pick up anything interesting. | |
Harry Boscoe (talk|edits) said: | 10 November 2009 |
| From what I've read, it seems to me that the 754 election would have to have been in effect for the year of the sale and purchase and that an election made for 2009 will not be effective to accomplish what you want, since it's too late to elect for January of 2007.
How did the two sellers deal with the 24 purchasers? Is it possible that the H/W partnership actually sold it assets to an entity newly formed by the 24 "purchasers"? I'm not challenging your statement of facts, just trying to find .. uh .. er .. a version of them that would get you where you want to be. Refrigpbrerator. | |
| 10 November 2009 | |
| Reg. 1.754-1(b) requires the election to be made in the taxable year the property disribution or transfer of partnership interest occurs.
As for the filing the election, it is to be made in a written statement accompanying the tax return for the year of distribution/transfer. | |
| 10 November 2009 | |
| Harry B -I am amending the 2007. Sorry, I wasn't clear. This is a TN LLC filing as a partnership. There were a multitude of errors on the 2007 1065. The filing was not in accordance with Sec 708(b)(1)(B) for a technical termination of a continuing partnership, no terminating return was filed for the previous (transferor) partners; no Forms 8594 were prepared or issued to the prev ptrs; assets were not in accordance with Sec 168(f)(5); capital accounts of the new Members(ptrs) did not reflect the actual amounts paid (I couldn't determine how the capital reported was derived, but it was substantially wrong); two of the new Members were left off of the return; one person who was not a Member in 2007 was included and was issued a K-1; there were several errors on other balance sheet items -cash didn't match the reconciled balance; analysis by partner type showed ALL as limited ptrs (at least 1 has to be a GP and for this partnership they are all GP's according to their LLC filing; income should have been SE on Sched K and was typed in 'Non-farm'..... Net Income was not materially off except for the added amortization expense of the new intangible from the purchase, but there were minor correcions and several reclassifications in income & expense categories that were needed.
The Sec 754 election is as WingCPA states (also including extentions) and I don't think I will be prohibited from making it in the amended return. I was foggy about if and which election to make, and on which return, terminating or new. I am going to make the 754 (under Sec 743) on the new partners return and let'r'go. I'm tired of putzing with it. THANKS to all of you for your input! It helped a lot. I was getting so bogged down researching all of this and confusing myself. | |
| 10 November 2009 | |
| Just found info regarding who makes the Sec 754. New partnership can make the election, BUT if the purchase causes a Sec 708(b)(1)(B) technical termination of the partnership, the Sec 754 can be made on the final partnership return prior to the deemed distribution and recontribution of assets (Rev. Rul. 88-42). | |
