Client and several others employee formed a holding company (partnership) to buy stock of the company they worked in. They were all full-time employees. The Company has a name-brand product/process/patent. The Company entered into negotiations, which started in 2016, for sale which lasted about 10 months. My client retired from the operating company during the negotiating process.
The Company is sold in 2017 and she gets a K-1 reporting a capital gain of ~$1million. She is less than a 1% partner. Is the capital gain reported on her K-1 subject to the NIIT?
My initial thought was that it would not be subject to it because it was not a passive activity (she worked there) and assets of the business were sold. However, with the holding company being the entity which held the stock, I'm not sure about this any more.
Any thoughts?