Code of Federal Regulations · Section
§ 301.6231(d)-1 — (d)-1 Time For Determining Profits Interest Of Partners For Purposes Of Sections 6223(b) And 6231(a)(11)
26 C.F.R. § 301.6231(d)-1
(a) Partner owns interest at close of year. For purposes of section 6223(b) (relating to special rules for partnerships with more than 100 partners) and section 6231(a)(11) (relating to 5-percent groups), except as otherwise provided in this section, the profits interest held by a partner, directly or indirectly through one or more pass-thru partners, in a partnership (the source partnership) to which subchapter C of chapter 63 of the Internal Revenue Code applies shall be determined at the close of the source partnership's taxable year.
(b) Partner does not own interest at close of year. If the entire direct and indirect interest of a partner in a source partnership is terminated by virtue of a disposition by such partner of such interest (or by virtue of the disposition of an interest held by one or more pass-thru partners through which the partner holds an interest), then the profits interest of such partner in the source partnership shall be measured as of the moment before the disposition causing such termination. The preceding sentence shall not apply with respect to a termination if subsequent to such termination and before the close of the source partnership's taxable year the partner acquires a direct or indirect interest in the source partnership.
(c) Disposition of last remaining portion of interest is disposition of entire interest. If a partner (or a pass-thru partner through which a partner holds an interest) makes several partial dispositions of an interest in a source partnership during a taxable year of the source partnership, paragraph (b) of this section will apply with respect to the disposition which causes a termination of the partner's entire direct and indirect interest in the source partnership.
(d) No profits interest in certain cases. If—
(1) The interest of a partner in a partnership is entirely disposed of before the close of the taxable year of the partnership; and
(2) No items of the partnership for that taxable year are required to be taken into account by the partner, then that partner has no profits interest in the partnership for that taxable year.
(e) Examples. The provisions of this section may be illustrated by the following examples. Assume in all examples that there have been no reacquisitions prior to the close of the source partnership's taxable year. The examples are as follows:
B holds an interest in partnership P through T, a pass-thru partner. P uses a fiscal year ending June 30 as P's taxable year; B and T use the calendar year as the taxable year. As of the close of P's taxable year ending June 30, 2002, T holds an interest in P and B holds an interest in P through T. The profits interest held by B in P through T for that year is determined as of June 30, 2002.
Assume the same facts as in Example 1, except that B sold the entire interest that B held in P through T on November 5, 2001. The profits interest held by B in P through T for P's taxable year ending June 30, 2002, is determined as of the moment before the sale on November 5, 2001.
C holds an interest in partnership P through T, a pass-thru partner. C, P, and T all use the calendar year as the taxable year. T disposes of T's interest in P on June 5, 2002. The profits interest held by C in P through T for 2002 is determined as of the moment before the disposition on June 5, 2002.
Assume the same facts as in Example 3, except that C sold C's entire interest in T (and, therefore, C's entire interest that C held in P through T) on March 15, 2002. The profits interest held by C in P through T for 2002 is determined as of the moment before the sale on March 15, 2002.
On January 1, 2002, D held a 2 percent profits interest in partnership P. Both D and P use the calendar year as the taxable year. On August 1, 2002, D transfers three-fourths of D's profits interest in P to E. On September 1, 2002, D sells D's remaining .5 percent profits interest in P to F. For purposes of sections 6223(b) and 6231(a)(11), D had a .5 percent profits interest in P for 2002.
Assume the same facts as in Example 5, except that on January 1, 2002, D also held a 1 percent profits interest in partnership P through T, a pass-thru partner which also uses the calendar year as the taxable year. In addition to the sale to E on August 1, 2002, D sold a portion of D's interest in T on December 1, 2002, such that after the sale, D held a .2 percent profits interest in P through T. D made no other transfers of interests in either P or T. For purposes of sections 6223(b) and 6231(a)(11), D had a .7 percent profits interest in P for 2002.
(f) Effective date. This section is applicable to partnership taxable years beginning on or after October 4, 2001. For years beginning prior to October 4, 2001, see § 301.6231(d)-1T contained in 26 CFR part 1, revised April 1, 2001.
Authorizing Statute
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Confidentiality and disclosure of returns and return information26 U.S.C. § 6103
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Restrictions applicable to deficiencies; petition to Tax Court26 U.S.C. § 6213
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Signing of returns and other documents26 U.S.C. § 6061
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Assessment, collection, and payment26 U.S.C. § 6232
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Period of limitations on making adjustments26 U.S.C. § 6235
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Validity and priority against certain persons26 U.S.C. § 6323
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Definitions26 U.S.C. § 7701
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Partner’s return must be consistent with partnership return26 U.S.C. § 6222
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Alternative to payment of imputed underpayment by partnership26 U.S.C. § 6226
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Notice of qualification as executor or receiver26 U.S.C. § 6036
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Partners bound by actions of partnership26 U.S.C. § 6223
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Abatements26 U.S.C. § 6404
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Commissioner of Internal Revenue; other officials26 U.S.C. § 7803
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Extension of time for filing returns26 U.S.C. § 6081
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Treaty-based return positions26 U.S.C. § 6114
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Timely mailing treated as timely filing and paying26 U.S.C. § 7502
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Interest and penalties26 U.S.C. § 6233
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Certified professional employer organizations26 U.S.C. § 7705
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Accelerated cost recovery system26 U.S.C. § 168
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General requirement of return, statement, or list26 U.S.C. § 6011
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Disclosure of reportable transactions26 U.S.C. § 6111
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Rules and regulations26 U.S.C. § 7805
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Persons required to make returns of income26 U.S.C. § 6012
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Return of S corporation26 U.S.C. § 6037
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Reimbursement to State and local law enforcement agencies26 U.S.C. § 7624
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Determination at partnership level26 U.S.C. § 6221
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Partnership adjustment by Secretary26 U.S.C. § 6225
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Authority to release levy and return property26 U.S.C. § 6343
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Disclosure or use of information by preparers of returns26 U.S.C. § 7216
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Departmental regulations5 U.S.C. § 301
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Tax imposed26 U.S.C. § 1
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Notice of proceedings and adjustment26 U.S.C. § 6231
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Payment of tax by commercially acceptable means26 U.S.C. § 6311
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Sale of seized property26 U.S.C. § 6335
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Procedural requirements26 U.S.C. § 6751
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Low-income housing credit26 U.S.C. § 42
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Special rules26 U.S.C. § 1474
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Returns by exempt organizations26 U.S.C. § 6033
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Definitions and special rules26 U.S.C. § 6241
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Administrative appeal of liens26 U.S.C. § 6326
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Expenses of detection of underpayments and fraud, etc.26 U.S.C. § 7623
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Information concerning resident status26 U.S.C. § 6039E
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Identifying numbers26 U.S.C. § 6109
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Administrative adjustment request by partnership26 U.S.C. § 6227
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Authority to make credits or refunds26 U.S.C. § 6402
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Judicial review of partnership adjustment26 U.S.C. § 6234
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Failure to file notice of redetermination of foreign tax26 U.S.C. § 6689
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Income from discharge of indebtedness26 U.S.C. § 108