IRC 751 "Hot Assets": Calculating And Reporting Ordinary Income In Disposition Of Partnership Or LLC Interests

Webinar: ID# 1026128
Recorded CD
About This Course:
This webinar will provide accounting and tax professionals with a deep dive into the tax treatment of so-called Section 751 “hot assets” when a partner disposes of his or her partnership interest. The panel will discuss identifying, calculating and reporting of ordinary income from hot assets in the sale of a partnership or LLC interest, and will review the proposed regulations under Section 751(b).

Generally, when a partner sells his or her partnership interest, the transaction is considered as the disposition of a capital asset, and any gain from the sale is taxed at lower capital gains rates. A notable exception to this treatment occurs when the partnership holds “hot assets” detailed in IRC Section 751.

In those cases, the sale of the partnership interest converts a portion of that long-term capital gain to ordinary income, and the sale may require the seller to report ordinary income in a transaction that generates a capital loss.

Section 751 was implemented to prevent partners from claiming favorable capital gain treatment on income that would be taxed as ordinary income if realized by the partnership, and lists two basic classes of properties requiring reclassification: “inventory” and “unrealized receivables.”

Taxpayers holding interests in partnerships with significant levels of either inventory or unrealized receivables must be aware, prior to sale of the interest, of the different tax treatment of these assets to avoid negative tax consequences. Section 751 applies when there is a shift in “hot assets,” whether a partner has capital gains or not.

Because the regulations seem to provide some difference in treatment depending on whether the transaction is structured as a sale of interest or a redemption, tax advisers should calculate the impact of Section 751 assets in each scenario to achieve the best possible tax result.

Listen as our expert panel provides a deep exploration into the Section 751 requirements, offering practical guidance and best practices for avoiding unforeseen tax traps in partnership interest dispositions.

  • Section 751(a) asset rules
  • Section 752(b) listed assets
    • Inventory
    • Unrealized receivables
    • Substantially appreciated inventory
  • Proposed regulations under Section 751

The panel will discuss these and other important issues:
  • How does the regime of Section 751 work in calculating gain/loss from ordinary income producing assets held at the partnership level?
  • What assets does Section 751 require to be calculated separately?
  • How are inventory assets treated differently in a redemption vs. a sale of partnership interest?
  • What options are available regarding cost allocation to minimize gain calculations on Section 751 assets?
  • What are the potential effects of the proposed regulations under Section 751(b)?
Learning Objectives

After completing this course, you will be able to:
  • Identify the specific rules governing tax treatment of Section 751 assets in a partnership disposition
  • Recognize assets that will trigger ordinary income recognition upon sale of a partnership interest
  • Discern circumstances in which a redemption may achieve better tax results for the selling partner than a sale
Course And Materials

Handout materials and the phone number for live presentations are made available to you one day prior to the event via email from the presenter. Copies of the presentations are included with recorded versions.

If you order a recorded version of the webinar, CDs will be mailed out approximately 10 days after the live event. Shipping is included in the price of recorded versions.

Continuing Education Credits Available

This program has been approved for 2.0 CPE hours through Strafford Publications. To obtain CPE credit, attendees must participate in the live event (recorded versions do not qualify for credit), return an Official Record of Attendance to Strafford affirming their participation (including the CPE code announced during the program), and pay a processing fee of $35 per person.

Strafford will mail a certificate of credit within approximately two weeks of receiving your completed Official Record of Attendance, provided all required conditions have been satisfied.

Strafford is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of accountancy have final authority on the acceptance of individual courses for CPE credit.
IRC 751 "Hot Assets": Calculating And Reporting Ordinary Income In Disposition Of Partnership Or LLC Interests
Available on CD format
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