Creating A Partnership Exit Strategy

Never pay unnecessary taxes. That was Culp Elliott & Carpenter’s philosophy when it helped a client withdraw assets from two entities – a large family limited- liability company and a family real-estate corporation – without paying taxes. The family LLC was a large multi-tier real-estate company and the corporation was a related real-estate management and investment company.

When the family approached CEC for help, family members believed that the withdrawal of assets would be taxable. The planning was especially complex because the exiting LLC member had contributed property to the family LLC within the last seven years, which brought into play several partnership tax anti-abuse provisions.

CEC devised a plan that allowed the LLC to distribute certain real-estate parcels owned in a lower-tier partnership to the family member who desired to withdraw. For the distribution to be made tax-free, it was necessary for the withdrawing LLC member to remain liable on certain LLC debt. As the withdrawing member was not willing to assume any significant risk by remaining liable on partnership debt, CEC structured an arrangement that allowed the withdrawing member to assume a contingent liability on certain LLC debt. The withdrawing member was satisfied he had little if any real risk.. CEC was also able to structure a tax-free spin-off of corporate assets from the family corporation.