This article discusses the steps required for transfer of assets and methods of sale for sole proprietorship, general partnership, corporation and other legal entities.
In the context of amerger, this resulting partnership will be, under state law, one ofthe merging partnerships. In addition, if the transaction is structuredas a distribution from one of the merging partnerships to itspartners and then over to the resulting partnership, gain could betriggered to the distributee partners. In suchcircumstances the resulting partnership is treated as thecontinuation of that merging partnership whose partners own morethan 50% of the capital and profits in the resulting partnership andthat transferred the greatest value of assets (net of liabilities) to theresulting partnership. Forexample, A and B might transfer their interests in the ABpartnership to partnership CD in exchange for interests in CD. (b) Example 3: Partnership ABC owns Blackacre withadjusted basis of and fair market value of 0as well as Whiteacre with adjusted basis and fairmarket value of 0.Company management, however, was blissfully unaware of this development and continued to file the business’s federal corporate income tax return and pay all federal income taxes.Eventually, company officers learned of their plight and reincorporated the business in the same state. Theproposed regulations specify that such an "assets- up" transactionwill be treated as occurring only if the distributed assets are firsttitled to the distributee and then retitled to the resultingpartnership. As a result, this preserves the low assetbasis of Whiteacre and prevents a net basis step-up. Taxation of Mergers Under the Proposed Regulations a. If the form is not respected, then the transferwill be recharacterized as an assets-over transfer from thedivided partnership to the resulting partnership. R and S thencontribute the distributed assets to newly-formedpartnership RS. 314, but provide substantially more detail and haveconsiderably greater reach. This is thepreferred form of transfer in the proposed regulations and definesthe taxation of a merger or division that occurs by operation ofstatute without any actual asset transfer or if any unapproved formof asset transfer is adopted. The initialdistribution can, but need not, be in complete liquidation of thedistributee partners interest in the distributing partnership. Part Assets Over, Part Assets Up (a) The proposed regulations seem to contemplate thata partnership which transfers its assets as part of amerger will use either the assets-over or the assets-upform of transfer for all of its assets. Assuming ABC is not thecontinuing partnership, the transaction will b recastas if Blackacre had been transferred directly from ABC to D. (2) Example 5: Suppose partnership PQRS distributes some ofits assets to partners R and S in complete liquidation oftheir interests in PQRS (renamed PQ).