IRS ANNOUNCES POSITION ON PARTNERSHIPS' CORPORATE CHARACTERISTICS.

Rev. Proc. 92-35

SECTION 1. BACKGROUND

Section 301.7701-2(a)(1) of the Procedure and Administration Regulations provides that the term "association" refers to an organization whose characteristics require it to be classified for purposes of taxation as a corporation rather than as another type of organization such as a partnership or a trust. There are a number of major characteristics ordinarily found in a pure corporation that, taken together, distinguish it from other organizations. These are: (i) associates, (ii) an objective to carry on business and divide the gains therefrom, (iii) continuity of life, (iv) centralization of management, (v) liability for corporate debts limited to corporate property, and (vi) free transferability of interests. Whether a particular organization is to be classified as an association must be determined by taking into account the presence or absence of each of these corporate characteristics.

Section 301.7701-2(b)(1) of the regulations provides that an organization has continuity of life if the death, insanity, bankruptcy, retirement, resignation, or expulsion of any member will not cause a dissolution of the organization. On the other hand, if the death, insanity, bankruptcy, retirement, resignation, or expulsion of any member will cause a dissolution of the organization, continuity of life does not exist. If the retirement, death, or insanity of a general partner of a limited partnership causes a dissolution of the partnership, unless the remaining general partners agree to continue the partnership or unless all remaining members agree to continue the partnership, continuity of life does not exist. See Glensder Textile Co. v. Commissioner, 46 B.T.A. 176 (1942), acq., 1942-1 C.B. 8.

Rev. Proc. 89-12, 1989-1 C.B. 798, provides that for a limited partnership formed in a state with a statute corresponding to the Uniform Limited Partnership Act or the Revised Uniform Limited Partnership Act, the Internal Revenue Service will not rule that the entity lacks continuity of life if, in the case of the removal of a general partner, the partnership agreement permits less than a majority in interest of limited partners to elect a new general partner to continue the partnership.

SEC. 2. APPLICATION

If under local law and the partnership agreement the bankruptcy or removal of a general partner of a limited partnership causes a dissolution of the partnership unless the remaining general partners or at least a majority in interest of all remaining partners agree to continue the partnership, the Service will not take the position that the limited partnership has the corporate characteristic of continuity of life.

SEC. 3. EFFECTIVE DATE

This revenue procedure applies to all limited partnerships whose partnership agreements contain, specifically or by operation of local law, the above provision.

DRAFTING INFORMATION

The principal author of this revenue procedure is James A. Quinn of the Office of Assistant Chief Counsel (Passthroughs and Special Industries). For further information regarding this revenue procedure contact James A. Quinn on (202) 566-3158 (not a toll-free call).