Sandra is an employee of the Beach Group, an organization active in the Florida real estate industry. Sandra finds real estate property on Miami Beach and subsequently organizes partnerships to acquire and finance the property. Sandra was particularly interested in one building in the Art Deco district that was to be purchased and renovated. She gathered interested investors who formed the Deco Partnership, consisting of two general partners and several limited partners. In exchange for her services in organizing the partnership, Sandra received a 3% limited partnership interest only in the profits of the Deco Partnership. As part of the agreement, the profits interest was transferable only at the discretion of the general partners. Based on the uncertainty in the South Florida real estate industry at the time, the partners could not estimate whether profits or losses would be generated when the renovation was completed in three years. Based on these facts, will Sandra’s receipt of the limited partnership interest be a taxable event?
A partial list of research sources is:
• Sec. 721
• Reg. Sec. 1.721-1(a)
• William G. Campbell v. CIR, 68 AFTR 2d 91-5425, 91-2 USTC ¶50,420 (8th Cir., 1991)
• Sol Diamond v. CIR, 33 AFTR 2d 74-852, 74-1 USTC ¶9306 (7th Cir., 1974)
• Rev. Proc. 93-27, 1993-2 C.B. 343
• Notice 2005-43, 2005-43 C.B. 1221