Laws, Regulations & Annotations

C

220.0000 CHANGE IN OWNERSHIP

Annotation 220.0375.030

220.0375.030 Limited Liability Company—Capital Interests and Profits. Property Tax Rule 462.180(d)(1)(A) provides that partnership and limited liability company (LLC) capital and profits are treated the same for majority ownership interest determinations. Under federal income tax law, partnership capital and profits interests are counted for purposes of determining a sale or exchange of those interests above a stated amount. A selling partner's capital interest is defined as equal to the portion of the partnership's equity that would be distributable to the partner upon a hypothetical sale of all partnership assets for their fair market value, satisfaction of all partnership liabilities, and liquidation of the partnership. The definition of partnership capital as a portion of the partnership's equity is applicable for change in ownership purposes. Equity is defined as an ownership right in property. Thus, the partner's share of the ownership rights in the partnership's property constitutes the partner's capital interest for federal income tax purposes. Likewise, Revenue and Taxation Code section 64 provides that a change in ownership is determined by the transfer of a majority of the partners' ownership interests to a single person or entity. Because partnership capital for federal income tax purposes is predicated on an ownership interest in the partnership, it is an appropriate definition for determining whether a partner or a member of an LLC has obtained a majority ownership interest in a partnership or LLC for change in ownership purposes. C 4/11/2005.