A Model of Complexity and Uncertainty: Redemptions of Partnership Interests

The tax treatment of redemptions of partnership interests is extremely complex and uncertain. The uncertainty in this area of Subchapter K provides considerable flexibility to taxpayers but comes with increased risk that a position taken with respect to a redemption could be challenged. Differences in treatment of redemptions of partnership interests and sales of partnership interests create planning opportunities, even though sales and redemptions often have the same economic results. To address perceived abuses arising in connection with the planning flexibility, courts and the Service have at times sought to recharacterize redemptions as sales. This Article discusses the circumstances in which a transaction will be treated as a redemption rather than a sale of a partnership interest to the other partners or a new partner.

Michelle M. Jewett

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