The Internal Revenue Service plans to issue guidance on technical terminations of a publicly traded partnership resulting in multiple short tax years within one calendar year.
Technical terminations of PTPs resulting in multiple short tax years within a calendar year can cause considerable problems for taxpayers. The IRS said it is working on the issue through its Industry Issue Resolution program, and that taxpayers who follow the resulting guidance can avoid time-consuming audits.
The issue that the IIR program is considering arises when more than 50 percent of a PTP’s capital and profits interest are sold or exchanged within a 12-month period, thereby resulting in a technical termination of the partnership under Section 708(b) of the Tax Code.
For the calendar year in which it occurs, a technical termination results in the PTP having two short tax years. Consequently, the PTP is required to file a Form 1065, “U.S. Partnership Return of Income,” for each short tax year. This requirement can cause tax problems for the partnership.
