Partnership Technical Termination Question

[Charley in Ohio]

We have a client who transferred LLC units from himself to his wife during 2008 for a few of his businesses (for reasons other than tax). These transfers meet the technical termination definition under Sec. 708 - (greater than 50% of profits and capital). Therefore, the LLC should end on the date of transfer and I'll have two short years in 2008. My problem is that whether I file I return with the proper pro-rata allocation of the income (based on the varied interests during the year which I would do if I didn't have the termination) or file two returns, the income would be reflected the same on the 1040s. My only issue I can see of not filing two returns is that the LLC would be not be able to elect any basis step-up under Sec 754 (which they wouldn't want to do as there are no significant assets) and wouldn't lose the right to make new elections (which I don't forsee as an issue either). Anyone have any comments on whether filing one return or two?? Thanks.

Charley

[RoyDaleOne]

I am in the office so I can not check, however, I would guess that there is not a termination of the partnership, under this set of facts. I could be wrong and will post more later.

[RoyDaleOne]

Only sales and exchanges of partnership interests are relevant to termination under Code Section 708((1)( -- transfers by gift and devise are ignored, as are liquidations of partnership interests. Reg. Section 1.708-1((2).

[Charley in Ohio]

Thanks for the input!!!

Charley