A sale of 50 percent or more of the LLC interests in a 12-month period can cause a “termination” of the LLC for tax purposes, even though the LLCs continuity as a business entity under state law is in no way impaired. This often causes tax headaches for partnerships as they are required to file tax returns for the terminated partnership.
The 2017 Tax Cuts and Jobs Act passed by Congress and signed by President Trump on December 22, 2017 has repealed the technical termination of partnerships. Effective for all taxable years beginning after 2017 IRC § 708(b)(1) has been modified by eliminating subsection (B) and ending the possibility of technical terminations in the future. This new rule is effective for partnerships whose tax years begin after 12/31/17.
Check out our analysis of the Tax Cuts and Jobs Act that we released in December 2017.