Partner Profits Interests: IRS Safe Harbor, Migrating From Employee to Partner, Ensuring Capital Gains Treatment

Note: CLE credit is not offered on this program

Recording of a 110-minute CPE webinar with Q&A


Conducted on Wednesday, May 20, 2020

Recorded event now available

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Program Materials

This webinar will discuss the effects of granting, vesting, and selling profits interests in partnerships along with the benefits and burdens of awarding these equity rights. Our panelists will explain the details of these transfers for partnership advisers, members, and professionals employing or considering this tax-effective method of transfering partnership interests.

Description

Granting a profits interest is not a taxable event, assuming the transfer meets the applicable IRS safe harbor requirements. At the date of the grant, a profits interest is deemed to hold no value and would not share in an immediate liquidation of the company. The absence of upfront taxes upon grant is a powerful incentive for utilizing this method of transfer. However, a recipient is no longer considered an employee of the company, and instead attains partner status, along with all of the rights and responsibilities that come with partnership.

Profits interests can be subject to various vesting requirements, similar to stock options and restricted stock. Properly structuring the profits interest can allow the recipient to share in the future appreciation of the company and enjoy long term capital gains rates on an eventual disposition. Tax advisers must be well-versed in the benefits and requirements of a profits interest to guide clients and report these transfers accurately.

Listen as our panel of experts explains the nuances of partnership profits interests, including meeting the IRS's safe harbor requirements, the effect of the grant on the recipient and grantor, and the tax consequences of its ultimate redemption.

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Outline

  1. Profits interests: an overview
  2. Capital vs. profits interests
  3. IRS safe harbor requirements
  4. Granting
  5. Vesting
  6. Selling
  7. Section 1061
  8. Other considerations

Benefits

The panel will cover these and other vital issues:

  • The effects of granting a profits interests on the partnership
  • The effects of granting a profits interests on the partner
  • Granting profits interests with vesting requirements
  • Making a protective 83(b) election
  • Meeting the IRS safe harbor requirements for profits interests
  • Ensuring capital gains treatment at the disposition

Faculty

Hirschfeld, Michael
Michael Hirschfeld

Managing Director
Andersen Tax

Mr. Hirschfeld focuses on international, partnership, corporate, and real estate tax planning and compliance. He has...  |  Read More

Hunt, Joseph
Joseph E. Hunt, IV

Attorney
Morse Barnes-Brown & Pendleton

Mr. Hunt has eight years of advisory and legal experience, counseling startup, emerging, and middle-market companies...  |  Read More

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