Yeah, quite frankly, I think the IRS would have a big problem with client excluding gain.
In the ruling, the property was distributed out (to the individuals) prior to the sale. The author is very well known and respected. However, his conclusion in the first paragraph of, “…should also apply to a residence titled in the partnership at the time of the sale” can be taken, IMO, to only be applicable to the facts in the ruling. He makes the same claim in the final paragraph. I think his point is that if the “partnership” is just a title-holding entity, wherein property is used personally [and exclusively] inside the partnership, then perhaps an exclusion could be sought on the grounds that the partnership really isn’t conducting business or holding property for investment, but rather, is just a title holder. But even with that said, the couple in the PLR apparently dropped a bunch of rental properties into the partnership as well. That to me might mean that the partnership was more than a property title holder. However, the ruling seemed to focus on the residence only. Why? I do not know. In any case, I do understand the line of reasoning that a title-holding partnership might not be a partnership for income tax purposes. Just maybe. I’m a bit uneasy about it. But it sure seems like it may have been a real partnership in the PLR situation.
Now we get to OP’s case, where the facts are markedly different than the PLR. Cathy posted about this situation previously. And if I’m not mistaken, there was some property fix-up involved:
viewtopic.php?f=8&t=28363&p=237080&hilit=realtor+llc#p237080I’m not sure if the fix-up happened. But Cathy does say the realtor paid off the mortgage. Said partnership amounts to more than a title-holding entity, IMO. It really existed to split profits. And it doesn’t just involve two spouses.
In short, I think Cathy would have a problem if an exclusion was claimed and it got challenged. Also some food for thought: If the realtor really did expend funds to fix-up, perhaps Cathy’s client got more (money) that she otherwise would have. I do realize that two spouses could do the same thing: Drop a residence into a partnership, fix it up through the partnership, and then sell it. In that case, though, I can still see how the primary purpose of the partnership was title-holding.
With all that said, I feel pretty uncomfortable with the PLR in question. Seems the IRS did too, hence it being revoked with PLR 200119014. (I haven’t thought through the fact that we’re dealing with an LLC here, but I’m not so sure I need to).
Thanks everyone, this is great news.
No, it’s not. Your facts don’t align with the PLR in the first place. And the PLR was revoked in the second place.