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APA used to purchase an interest in a partnership?

Technical topics regarding tax preparation.
#1
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Client with a partnership. Original members are A & B. They sold a 10% share in the partnership to member C.

Client sends me the purchase agreement, and it turns out to be an Asset Purchase Agreement (APA), stating that the "asset" in the membership interest.

I haven't seen this before. I've always seen an APA used to buy assets, never an ownership of stock (I generally tend to work with S Corps mostly).

Can an APA be used to buy an ownership interest in a partnership?
 

#2
Nilodop  
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And who is the seller?
 

#3
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Nilodop wrote:And who is the seller?


The two original members, A & B. Both sold 5% of their interest to Member C
 

#4
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does the agreement define the "asset" being sold as the membership in the partnership? if so, shouldnt be a problem from my perspective...

The name of the agreement isn't of any real tax-substance (from my perspective). But I've often seen these called "membership interest purchase agreement"s...
 

#5
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I would assume this type of agreement is probably of greater value than the typical one I receive in these instances.
To make a 754 election and calculate the 743(b) adjustment you need to know the FMV of the underlying assets. This agreement probably provides that.
~Captcook
 

#6
Nilodop  
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I think HenryDavid is correct, but if it's a "form" that they just filled in It was likely meant for what we typically mean when we say asset purchase. Based on OP's profile, he's probably on top of CaptCook's point.
 

#7
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HenryDavid wrote:does the agreement define the "asset" being sold as the membership in the partnership? if so, shouldnt be a problem from my perspective...

The name of the agreement isn't of any real tax-substance (from my perspective). But I've often seen these called "membership interest purchase agreement"s...


It is indeed almost exactly this. "...Purchasing ten percent membership in sellers limited liability company..."
 

#8
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CaptCook wrote:I would assume this type of agreement is probably of greater value than the typical one I receive in these instances.
To make a 754 election and calculate the 743(b) adjustment you need to know the FMV of the underlying assets. This agreement probably provides that.


This was along the lines of what I was thinking the reasoning for this particular type of agreement might be. However, the rest of the document is boilerplate, and only three pages long.

Now to bone up on 754 adjustments... I hardly ever deal with partnerships, and now this is the 2nd time in as many days that I've had to look into it.
 

#9
Nilodop  
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Now to bone up on 754 adjustments... I hardly ever deal with partnerships, and now this is the 2nd time in as many days that I've had to look into it.. Hmmm ...
Primarily Multi State C Corps, S Corps, & Partnerships (Some individuals)
 

#10
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Nilodop wrote:Now to bone up on 754 adjustments... I hardly ever deal with partnerships, and now this is the 2nd time in as many days that I've had to look into it.. Hmmm ...
Primarily Multi State C Corps, S Corps, & Partnerships (Some individuals)


Haha.., just goes to show you how things change. Since moving firms, I haven't touched a partnership in over 2 years. I mostly focus on S Corps and individuals now.
 


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