January 2026

Non-Recognition Exchanges

Under the Code and the Regulations issued thereunder, the gain or loss arising from the conversion of property into cash is treated as income realized or as loss sustained by the owner of the converted property,[i] which the owner must generally account for in determining their federal income tax liability for the year of the conversion.[ii]

Likewise, the gain or loss arising from a property owner’s exchange of such property for other property that differs “materially in kind” from the property exchanged should, as in the case of a sale for cash, be treated as a taxable event, the gain or loss from which must be accounted for in determining the owner’s gross income for the year of the exchange.[iii] Continue Reading Tax-free Conversion of Corporation Into Partnership Via “C” Reorganization

Limited Partner Exclusion

Last week, the federal Court of Appeals for the Fifth Circuit ruled that the U.S. Tax Court had misinterpreted the Code’s self-employment tax rules as they apply to individuals who hold limited partnership interests in a state law limited partnership notwithstanding that such individuals also render services to the partnership of a nature that is integral to the limited partnership’s business.[i]

In doing so, the Court relied upon a narrow and dated reading of the Code that disregarded the current “practice” of many businesses in the financial sector, including investment firms, that organize as limited partnerships for the purpose of avoiding the imposition of the self-employment tax upon the entire limited partner distributive share of those individual limited partners who are actively engaged in the operation and management of the partnership’s business.Continue Reading “Limited Partner”? The Exclusion of Net Earnings from Self-Employment

Tax Savings and Deal Economics

It is a basic tax principle that the more (or the sooner) a seller pays in taxes on the sale of its business, the less will be the economic benefit the seller realizes from the sale. Similarly, the fewer the tax savings that the buyer realizes from the acquisition of the business, the less will be the economic benefit the buyer realizes from the acquisition.[i]

Allocation of Purchase Price

In most cases, these “truths” are first considered in determining the form of the transaction – a purchase and sale of assets or of stock. They become prominent again in the context of allocating the consideration[ii] actually, or deemed to have been,[iii] paid and received for the actual or deemed purchase and sale of the assets comprising the business.Continue Reading When a Buyer’s “Tax Cost” for an Acquisition Exceeds Expectations