In the event that you have had your fund transferred frequently by
limited partners, then there is a real risk that it might get designated as a
publicly traded partnership. This will be really bad for you because your fund
can be liable to get taxed as a corporation that can provide income. It can be
really surprising to learn about how low the line is when funds can get treated
as publicly traded partnerships.
A partnership can get treated as a publicly traded partnership in
certain specific situations, like for instance if the interests in the
partnership that are being traded are on certain securities markets. It can
also happen if interests in the partnership can be readily traded in secondary
markets. However, the problem in this regard is that if you have a secondary
market then what parameters does it follow. Under the rules of income tax, you
will be tested based on certain circumstance tests to learn if your fund is
available for buying, selling and trading in a specific manner that can be
compared to proper trading practices in the securities market.
This can be really bothersome because income tax officials can be
quite petulant in designating your fund is tradable. One of the provisions that
you can use here is to show how your fund can be exempted under certain
regulations and show it as a trading exception. This will help you to show that
your fund is not easily tradable in the secondary market and there are no real
tangible gains to be made from the entire process. This process can be long but
it can help you save your fund. Of course another option will be to use a good
qualified matching service or QMS.
When you are making your transfers through these qualified machine
services, then almost about 10% of your interests may get transferred during
your taxable year and still not make your company a publicly traded
partnership. If you want to learn how to choose the right QuaFlified Matching Service, then you
should look up relevant forums on the internet to get a good idea.
