Charitable Gifts of Limited Partnership And Limited Liability Company InterestsCharitable Gifts of Limited Partnership And Limited Liability Company Interests

Individuals routinely propose making charitable gifts of interests in limited partnerships (LPs) and limited liability companies (LLCs). They do so, in my experience, having scant idea how such a gift will work from a federal tax standpoint. Such gifts can have uncertain and possibly adverse tax consequences because of the bargain sale rules under Internal Revenue Code Section 1011 and because of IRC Section 751, which causes ordinary income to be realized on the sale of a partnership interest with respect to “hot” partnership assets (that is, assets which, if sold, would cause ordinary income as opposed to capital gains to be realized). Section 751 applies only to partnerships, but because LLCs typically elect to be treated as partnersh...