Structuring Section 708 Partnership Mergers Absent IRS Guidance

89 Pages·2016·2.1 MB·English

Presenting a live 90‐minute webinar with interactive Q&A
Structuring Section 708 Partnership Mergers 
Absent IRS Guidance: Avoiding Termination 
in Collapsing Transactions 
Assets‐Over vs. Assets‐Up Transactions, Maintaining Continuity of Interest, and Deferring Tax Recognition
WEDNESDAY, SEPTEMBER 28, 2016
1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific
Today’s faculty features:
Joseph K. Fletcher, III, Partner, Glaser Weil Fink Howard Avchen & Shapiro, Los Angeles
Joseph C. Mandarino, Partner, Smith Gambrell & Russell, Atlanta
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35.
Joseph K. Fletcher, III
Partner, Glaser Weil
[email protected]
1239526 ©2016 Glaser Weil Fink Howard
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Avchen & Shapiro LLP
Entity Mergers and Conversions:
State Laws and Tax Laws
 A merger involves two or more entities.
Interspecies mergers have become common.
 A conversion involves only one entity
converting into another type of entity.
Interspecies conversions have also become
common.
©2016 Glaser Weil Fink Howard
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Avchen & Shapiro LLP
Entity Mergers and Conversions:
State Laws and Tax Laws
 Prior to the availability of conversions, a
conversion to another business entity type was
generally accomplished in two steps:
◦
(1) the new entity was formed (for example, an LLC);
◦
(2) the existing entity was merged into the new entity, with the
new entity surviving.
 This two-step merger had actual “steps.”
 Today, two-step mergers are still possible, but one
step conversions also exist.
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Avchen & Shapiro LLP
Ease of Conversion (CA example)
 The ease of conversion is illustrated by the CA Secretary of State
website: http://www.sos.ca.gov/business-programs/business-
entities/conversion-information/
 If the converted entity will be a California LLC:
 The converting entity must be a California Corp, LP or GP; or Foreign Corp, LLC, LP, GP or
Other Business Entity;
 File Articles of Organization – Conversion (Form LLC-1A)(PDF - REV 01/2016); and
 The filing fee is $150 if a California Corp is involved; and $70 for all others.
 If the converted entity will be a California LP:
 The converting entity must be a California Corp, LLC or GP; or Foreign Corp, LLC, LP, GP or
Other Business Entity;
 File a Certificate of Limited Partnership – Conversion (Form LP-1A)(PDF - REV 01/2016); and
 The filing fee is $150 if a California Corp is involved; and $70 for all others.
 If the converted entity will be a Registered GP:
 The converting entity must be a California Corp, LLC or LP; or Foreign Corp, LLC, LP or Other
Business Entity;
 File a Statement of Partnership Authority – Conversion (Form GP-1A)(PDF - REV 01/2016);
and
 The filing fee is $150 if a California Corp is involved; and $70 for all others.
 If the converted entity will be a Non-registering GP:
 The converting entity must be a California Corp, LLC or LP; or Registered Foreign Corp, LLC,
LP or Other Business Entity;
 File a Certificate of Conversion (Form CONV-1A)(PDF - REV 01/2016); and
 The filing fee is $150 if a California Corp is involved; and $30 for all others.
 If the converted entity will be a Foreign Entity:
 The converting entity must be a California LLC or LP, or Registered California GP;
 File a Certificate of Conversion (Form CONV-1A)(PDF - REV 01/2016); and
 The filing fee is $30.
©2016 Glaser Weil Fink Howard
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Avchen & Shapiro LLP
Entity Mergers and Conversions:
State Laws and Tax Laws
 A mere conversion is not regarded as a merger
for tax purposes.
◦
Under state conversion statues, a simple filing may, in
many instances, effect the conversion.
◦
The understanding of the tax consequences that occur
is, nonetheless, essential, in understanding how one-
step conversions are treated.
◦
Formless conversion statutes carry with them certain
deemed steps, one must be aware of these steps and
choose an alternative to the formless conversion if the
deemed steps aren’t desirable under the specific facts.
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Avchen & Shapiro LLP
Entity Mergers and Conversions
 A series of Revenue Rulings address mergers and
conversions involving partnerships and LLCs.
◦
Rev. Rul. 84-52, 1984-1 C.B. 157, conversion of a general
partnership into a limited partnership.
◦
Rev. Rul. 95-37, 1995-1 C.B. 130, amplifies Rev. Rul. 84-52
and applies the same approach to the conversion of a domestic
partnership to a domestic LLC that is classified as a partnership.
Rev. Rul. 68-289, 168-1 C.B. 314 involves the mechanics
of the merger of three partnerships in an assets over form.
◦
Rev. Rul. 99-5, 1999-1 C.B. 434, conversion of a disregarded
entity into a partnership.
◦
Rev. Rul. 99-6, 1996-1 C.B. 432, conversion of a partnership
into a disregarded entity.
◦
Rev. Rul. 84-111, 1984-2 C.B. 88, incorporation of a
partnership. This Revenue Ruling is also the touchstone for the
key constructs of how assets and liabilities are transferred,
“assets over,” interests over” and “assets up.”
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Avchen & Shapiro LLP
Incorporation of a Partnership
◦ Rev. Rul. 84-111 recognized that there were at least 3 ways for a
partnership to convert to a corporation, each with unique tax
consequences, it was the first detailed pronouncement on such
steps.
◦ Situation 1. The partnership transfers all of its assets to a newly-formed
corporation, in exchange for all the outstanding stock of the corporation and the
assumption by the corporation of the partnership’s liabilities. The partnership
then terminates by distributing all its stock to the partners of the partnership in
proportion to their partnership interests. This is the so-called “assets over”
approach.
◦ Situation 2. The partnership distributes all its assets and liabilities to its partners
in proportion to their partnership interests in a transaction that constitutes a
complete termination of the partnership under section 708(b)(1)(A). The
partners then transfer all of the assets receive from the partnership to the newly-
formed corporation in exchange for at he outstanding stock of the corporation
and the assumption by the corporation of the liabilities that had been assumed
by the partners. This is the so-called “assets up” approach.
◦ Situation 3. The partners transfer their partnership interests to a newly-formed
corporation in exchange for the outstanding stock of the corporation. The
exchange terminates the partnership and all of the assets and liabilities of the
partnership become assets and liabilities of the corporation. This is the so-
called “partnership interest transfer” approach.
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Avchen & Shapiro LLP