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Partnerships and Their Partners

If you have a question regarding any of the following campaigns, please contact Doug Andre, Jamie Brown or Heléna Klumpp.

Partnership Stop Filer

  • Rollout: March 13, 2018
  • LB&I summary: Partners report income, losses, and other items passed through from their partnership. Some partnerships stop filing tax returns for various reasons yet still have economic transactions that are not being reported to their partners. That activity is likely not being reported by the partners. The treatment streams for this campaign include issue-based examinations, soft letters encouraging voluntary self-correction, and stakeholder outreach.

Sale of Partnership Interest

  • Rollout: March 13, 2018
  • LB&I summary: Generally, the sale of a partnership interest results in capital gain or loss. If the partner held the interest for more than one year, the long-term capital gain tax rate is usually 15 percent. If the partnership depreciated real property or has appreciated collectibles at the time of the sale or exchange, higher capital gain rates may apply. If the partnership has inventory items or unrealized receivables at the time of the sale or exchange, a portion of the gain or loss will be ordinary gain or loss.

This campaign will address taxpayers who do not report the sale or do not report the gain or loss correctly. Incorrect reporting may include the gain or loss amount or reporting the entire gain as long-term capital gain (usually 15 percent). Often, a portion of the gain is ordinary gain or taxed at the 25 percent or 28 percent long-term capital gain rates.

A variety of treatment streams will address taxpayer noncompliance, including examinations. When appropriate, the Service will issue soft letters. Additional treatment streams include practitioner and taxpayer outreach, tax software vendor outreach, and tax form and publication change suggestions.

SECA Tax

  • Rollout: March 13, 2018
  • LB&I summary: Partners report income passed through from their partnerships.  Unless an individual partner qualifies as a “limited partner” for self-employment tax purposes, the partner’s distributive share is subject to self-employment tax under the Self-Employment Contributions Act (SECA). Some individual partners, including service partners in service partnerships organized as state-law limited liability partnerships, limited partnerships, and limited liability companies, have inappropriately claimed to qualify as “limited partners” not subject to SECA tax.
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