Partner's basis

I've got a new client. He has LP Units in a large partnership. He is an employee in this partnership as well. His ownership stake is less than 1%.

He has purchased some of these Units with cash if they have a funding event. He also gets options to buy and has exercised these options to buy additional Units.

In 2019, there was a "Buyback" and the Partnership allowed Unitholders to be bought out, and/or roll the old LP Units into a new Unit with new terms. He did both: took some cash off the table, and then rolled some of his units into the new A-Units.

I need a primer on LP units taxable events and basis for these transactions. Does the Buyback amount to a redemption and it is thus possibly not a taxable event?

Thank you in advance.

Unless he took excessive cash out of his LP basis, then no gain should be recognized.

Also, I don't think you should be an LP and employee at the same time in the same partnership. The IRS has become rigorous on this recently.

Also, I don't think you should be an LP and employee at the same time in the same partnership. I mimagine employees of Blackstone Group (before it incorporated) were often also partners in it. Is the company discussed in OP a PTP? https://www.thetaxadviser.com/issues/20 ... stors.html

Thanks. It is not a Publicly Traded Partnership.

The other problem is that the taxpayer has not tracked his basis since joining the partnership. I'm hoping the current year K-1 has tax basis reported on it. Otherwise it will be an ugly exercise in reconstructing his basis back from the original investment with more than a handful of taxable years and events.

For LP units, isn't it a blended basis used for each taxable event?

For LP units, isn't it a blended basis used for each taxable event?

Generally, the term "unitary" basis is used. That is, each unit doesn't have a discrete basis like a share of stock would have, but the entire interest has one basis, in the aggregate, that must be evaluated.

The other dynamic not brought up so far is whether any unrealized receivables (hot assets) exist. This may trigger current ordinary income on the sale.