IRS Practice Unit Focuses On Sale Of A Partnership Interest

It is a little known secret that IRS Large Business & International (“LB&I”) issues “Practice Units” from time to time. Often, these Practice Units are worth a read because they “are developed through internal collaboration and serve as both job aids and training materials . . . [to IRS examiners] on tax issues.”  A list of former Practice Units can be found here.

Recently, on March 12, 2021, IRS LB&I issued a 50-page Practice Unit on the “Sale of a Partnership Interest.”  This Insight discusses that Practice Unit.

General Concepts.

Subchapter K of the Internal Revenue Code (“Code”) houses the partnership tax rules.  Under these complex rules, a partnership is generally not a taxable entity—rather, the items from the partnership flow through and are reported by the partners on their respective income tax returns.  In this manner, a partnership is not treated as a separate entity but instead is treated more as an aggregate of its partners.  For federal tax purposes, this is known as the “aggregate theory” of partnership taxation.

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