The IRS has confirmed in emailed advice (CCA 201315026) that a partnership whose partners continued the old partnership's business through a new entity under local law continued as the same partnership for U.S. federal income tax purposes.
Section 708(a) provides that a partnership is considered continuing if it is not terminated. A partnership can terminate for U.S. federal income tax purposes in two ways. Under Section 708(b)(1)(A), a partnership terminates if no part of any business, financial operation or venture of the partnership continues to be carried on by any of its partners in the partnership. Under Section 708(b)(1)(B), a partnership terminates if within a 12-month period 50% or more of the total interest in partnership capital and profits is sold or exchanged.
The CCA's facts are brief. The CCA states that the original entity merged with an existing disregarded entity held by a new partnership, while at the same time the partners contributed their interests in the original partnership in exchange for interests in the new partnership. Apparently, the new partnership had obtained a new IRS employer identification number (EIN). This transaction resulted in the partners' holding the same interests in the new partnership as they held in the original partnership and the original partnership's becoming a disregarded entity held by the new partnership. Though the CCA does not explicitly state this, presumably both the original partnership and the new partnership were classified as partnerships for U.S. federal income tax purposes.
Citing Rev. Rul. 66-264 (holding that a partnership did not terminate when three partners of a five-partner partnership purchased the partnership's assets at a judicial sale, and then continued the partnership's business through a new three-person partnership), the IRS concluded that the new partnership is considered a continuation of the original partnership, even though the new partnership bears a different EIN. Generally, where a partnership continues for U.S. federal income tax purposes (albeit under a different name or state), the partnership does not need to obtain a new EIN. The CCA also concludes that there was no termination under Section 708(b)(1)(B). Thus, presumably, the original partnership, continuing in the local law entity of the new partnership, did not need to file a final tax return for a short taxable year ending on the date of the local law merger.
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