eserve or that is held pending distribution to the unitholders must be invested in short-term debt obligations; (6) the DST manager cannot choose to reinvest the proceeds from the sale of the underlying real estate—rather, that is the decision of each unitholder; and (7) capital improvements to the property are limited to general maintenance and repair and those required by law.Sponsors of DST investments in this context typically offer two approaches. In the first approach, the sponsor will hold the real property (through the DST) for only a few years and then will sell it to a third-party buyer, at which time the exchangor must decide whether it wants to receive cash or exchange its units for other real property (including units in another DST) in a like kind exchange. In the second approach, the sponsor will hold the real property in the DST for 2-3 years and then contribute the property to an “umbrella partnership” of a REIT, or “upREIT”. This contribution is non-taxable under IRS Section 721 of the Internal Revenue Code, which provides that a contribution of property to a partnership in exchange for an interest in the partnership is not taxable. Following this contribution, the exchangor will receive shares in the REIT in exchange for its units in the DST. Crucially, the shares in the REIT that the exchangor receives will not qualify as an interest in real property for purposes of a subsequent like kind exchange. What are the benefits of a DST and an upREIT versus a direct property reinvestment? For some investors, direct real estate ownership and management is a daunting prospect: the volume of a landlord’s duties and responsibilities is high enough, without even factoring in the potential for nightmare tenant scenarios. The DST allows for an investor to take a completely passive role—maintaining real estate exposure but no longer responsible for active property management.With the marriage of a DST and an upREIT into a multi-billion dollar fund, one can invest in a diverse portfolio of real estate.

The Tax Court recently held in a memorandum opinion, ES NPA Holding, LLC v. Commissioner, that partnership interests in an upper-tier partnership issued to a service provider of a lower-tier partnership qualified as nontaxable profits interests.The decision sheds light on when services will be considered to be provided “to or for the benefit of the partnership” and whether the value of the interests on the date of issuance is best determined by looking to the contemporaneous arm’s-length sale of the underlying business of the issuing partnership to an unrelated third party or some other valuation method. As discussed below, while the Tax Court’s approach is sound in this regard, its application to the facts at hand appears flawed.Backgroundgenerally provides for nonrecognition treatment to a person who contributes property to a partnership in exchange for an interest therein. However, services are not considered “property” for this purpose. Regulations promulgated under section 721 deny nonrecognition treatment to interests in partnership capital issued in exchange for services, but they distinguish such interests from interests in a share of partnership profits.This distinction has led some courts to exempt from current taxation the issuance of profits interests in exchange for services, though judicial approaches have not been uniform in this regard.To address this uncertainty, the IRS issued , which provides that while the receipt of a partnership capital interest for services is taxable, a profits interest meeting certain requirements issued in exchange for services provided “to or for the benefit of the partnership” is not generally treated as a taxable event. The Revenue Procedure defines a “capital interest” as “an interest that would give the holder a share of the proceeds if the partnership’s assets were sold at fair market value and then the proceeds were distributed in complete liquidation of the partnership.” This determination generally is made at t

ip attributable to profits interest should be taxed as ordinary income and be subject to self-employment tax because such income is derived from the performance of services.In response, the Tax Cut and Jobs Act of 2017 enacted IRC Sec. 1061, which extended the long-term holding period requirement for certain capital gains resulting from partnership property dispositions and from partnership interest sales, from one year to three years, effective for taxable years beginning after December 31, 2017. T.C. Memo. 2023-55 ES NPA Holding, LLC, v. Comm’r, No. 13471-17; filed May 3, 2023. The so-called “distribution threshold.” Thereby converting Partnership into a partnership for tax purposes. Rev. Rul. 99-5.According to the term sheet, Investors paid $14,502,436 for “good will” and $6,483,073 for the existing book of loans for a total price of $20,985,509. The call option agreement also provided that Taxpayer was given “an option . . . to purchase all of the Class C Units . . . from [LLC].” IRC Sec. 721(a). See IRC Sec. 83(a) (generally dictating the recipient’s tax treatment of property received in connection with services performed); Reg. Sec. 1.61-2(d) (stating property received as compensation must be included in income). Reg. Sec. 1.721-1(b)(1). The Court observed that the foregoing parenthetical reference to a profits interest in the above regulation has been read as intending to exempt the receipt of a profits interest for services from taxation. This same view, it stated, has been acknowledged by the Tax Court. Treasury Regulation § 1.721-1(b)(1). Under IRC Sec. 61.Diamond v. Comm’r 56 T.C. 530 (1971), aff’d, 492 F.2d 286 (7th Cir. 1974; in Campbell v. Comm’r, T.C. Memo. 1990- 162, aff’d in part, rev’d in part, 943 F.2d 815 (8th Cir. 1991)Campbell v. Comm’r, 943 F.2d 815. Rev. Proc. 93-27. Citing Reg. Sec. 1.721-1(b)(1). Rev. Proc. 2001-43 clarified Rev. Proc. 93-27 by providing that the determination of whether the interest granted is a profits interest is tested at the time o

ions, and to carry out the purposes of Subchapter K pertaining to partnership contributions and distributions.An applicable corporation can offset its CAMT with general business credits and is limited to 75 percent of AFSI.An applicable corporation can use financial statement net operating loss carry-forwards to offset up to 80 percent of book income. Congress limited such carry-forwards to losses arising from taxable years ending after Dec. 31, 2019.Covered Nonrecognition and Recognition TransactionsCovered Nonrecognition TransactionsAlmost immediately after President Joe Biden signed the IRA, the Treasury Department received comments from stakeholders requesting a broad exception for corporate reorganizations and similar transactions, and it exercised its broad authority to largely insulate specified nonrecognition transaction from the CAMT. A Covered Nonrecognition Transaction is defined as one that qualifies for nonrecognition under Sections 332, 337, 351, 354, 355, 357, 361, 368, 721, 731 or 1032, or a combination thereof. Each component of a larger transaction is examined separately for purposes of determining if the transaction meets the definition of a Covered Nonrecognition Transaction.AFSI income of the party subject to a Covered Nonrecognition Transaction is adjusted to remove financial accounting gain or loss resulting from the application of the accounting standards used by the party. Also, any increase or decrease in the financial accounting basis is ignored for purposes of the AFSI of the party receiving the transferred property.Covered Recognition TransactionsThe Covered Recognition Transaction rules are for most purposes a mirror image of the Covered Nonrecognition Transaction rules. A Covered Recognition Transaction is defined as any transfer, sale, contribution, distribution or other disposition of property treated for federal income tax purposes as resulting in gain or loss – essentially, anything that does not qualify as a Covered Nonrecognition Tr

Rev. Rul. 55-701. Reg. Sec. 301.7701-3.Pierre v. Comm’r, 133 T.C. 24 (2009). Of course, Rev. Rul. 99-5 treats the transfer of an interest in a single member LLC that is disregarded for tax purposes as the transfer of a proportionate part of the LLC’s assets, followed by a contribution of such assets by both the original member and the new member as a contribution to the LLC described in IRC Sec. 721. IRC Sec. 2513(a)(1). IRC Sec. 2523(a) and Sec. 2523(i).

The momentary existence of a single member “subsidiary” partnership is ignored for this purpose. IRC Sec. 721. IRC Sec. 731(a).I am assuming for our purposes that none of IRC Sec. 704(c)(1)(B), 707, 737, 751, and 752 apply. Seems like a lot, but not really where the real properties held by the distributing partnership were acquired by the partnership, and any partnership debt is split proportionately between the distributing and the distributed partnerships.

Under Article 22 of the NY Tax Law. . IRC Sec. 368(a)(1)(F). IRC Sec. 721 or Sec. 351, depending upon whether the issuing entity is a partnership or a corporation (the latter has a “control” requirement). Other than those of the Transferor Corporation.

Or is part of a “control group” of shareholders who, usually pursuant to a plan, are in control after having made capital contributions to the corporation. IRC Sec. 721. Unlike the requirements for a contribution to a corporation. The control requirement will present a challenge in the case of a rollover to a private equity firm organized as a corporation.

d to consent to any tax adjustments the IRS may require as a condition to its waiving an inadvertent termination of the corporation’s “S” election. Finally, get it signed. I sure hope I used that phrase correctly.https://www.cnn.com/2021/11/19/politics/house-vote-build-back-better/index.html.https://www.cnn.com/2021/12/02/politics/joe-manchin-biden-build-back-better/index.html.What did Pres. Lincoln say about a house divided? Speaking of which, we’re approaching the anniversary of the admission of Texas as a State. Did you know that one year earlier, Massachusetts affirmed its right to secede if Texas were admitted?That said, it appears the Dems have found a way to raise the debt ceiling. See, e.g., https://www.rivkinradler.com/publications/tax-hikes-effective-dates-and-selling-a-business/ ; https://www.taxslaw.com/2021/10/gifts-sales-and-effective-dates-the-race-against-the-clock-the-taxpayer-cannot-see/ Most include a rollover of some equity which may qualify for gain deferral under IRC Sec. 721 or Sec. 351 (primarily the former). Whether rightly or wrongly remains to be seen, especially given the divisions within the majority Party’s own ranks. Think land of the living, the River Styx, and the Underworld. For example, a corporation’s election to be treated as an S corporation. IRC Sec. 1361 and Sec. 1362. In order to qualify as an S corporation, the corporation must be a small business corporation for which an election has been made. A “small business corporation” means a domestic corporation which is not an “ineligible corporation,” and which does not (A) have more than 100 shareholders, (B) have as a shareholder a person (other than an estate, certain trusts, or certain tax-exempt organizations) who is not an individual, (C) have a nonresident alien as a shareholder, and (D) have more than 1 class of stock. Let’s assume the gift was made late in 2012, just before another December 31 deadline that (thankfully) turned out to be a false alarm, thanks to a retroactive effectiv

In general, a contribution to a partnership in exchange for a partnership interest is not taxable to the contributing partner. IRC Sec. 721. There are exceptions; see, for example, IRC Sec. 707 and Sec. 752.However, a contribution of property to a corporation in exchange for shares of stock therein will be treated as a taxable disposition of the property unless the contributor is treated as part of a so-called “control group” – a group of persons that, acting “in concert,” contributed assets to the corporation in exchange for shares of its stock and, immediately following such contribution, was in “control” of the corporation.