18, Sec. Code Section 5747.212 as applied to the taxpayer in Corrigan was unconstitutional under the Due Process Clause of the Fourteenth Amendment to the U.S. Constitution. New York issued Advisory Opinion No. California Revenue and Taxation Code section 17952 provides that for purposes of determining income from sources within California from certain intangible property held by nonresidents or part-year residents, the certain intangible property must have a business situs in California. We strive to provide a website that is easy to use and understand. The ruling effectively holds that this deemed sale of hot assets is not treated as a sale of intangible property, nor as an asset sale, but rather, as a distributive share of income from a trade, business or profession to be sourced under FTB Regulation 17951-4. Dana Lance is the Tax Practice Leader for the Greater Bay Area and the SALT Practice Leader for the West Region. . Executives are advised to pay special attention to emerging trends that will shape how boards and investors talk about ESG in 2021. For a complete listing of the FTBs official Spanish pages, visit La esta pagina en Espanol (Spanish home page). Code Sec. Forms, publications, and all applications, such as your MyFTB account, cannot be translated using this Google translation application tool. Banks face new challenges on regulation, ESG, mortgages, digital assets, audit, tax or digital transformation in 2022. & Tax. > Sale of partnership interest - Holding period Holding period for partnership interest acquired for cash or property other than a capital asset or section 1231 property starts Recent CA. 2023-OTA-069P, Leonard Smith, a California nonresident, owned an indirect interest in SOSV LLC (SOSV), classified as a partnership for federal and California tax purposes. If a nonresident's business, trade, or profession is carried on both within and outside California, the income must be allocated across multiple states. Code Regs. Your prorated regular tax was $6,000. The limited partnership did not use its holding in the lower-tier partnership in any New York business activity; therefore, the gain was not includible as New York-source income. Proposition 30 also raises the California sales tax from 7.25 percent to 7.5 percent for four years, starting January 1, 2013. Rev. Your total taxable income for the year was $150,000, with $20,000 in itemized deductions. The primary asset sold was goodwill, and this transaction resulted in a long-term gain that exceeded $607 million. 751 property is located in California, pursuant to Cal. Five thousand dollars ($5,000) of the itemized deductions were real and personal property taxes, which are preference items. 17952 to the facts of the case, the concurring opinion concluded that the intangible property had partially acquired a business situs in California. 17952. . & Tax. NewJerseyCPA 2 yr. ago. The California Office of Tax Appeals (OTA) extended a recent ruling on the taxation of nonresident income from unitary S corporations to unitary partnerships by finding a nonresident liable for California income tax on their distributive share of gain from the sale of a partnership interest in a timeshare developer. The FTB has been experimenting with versions of this position in audit for the last few years but has now formalized its view in a published ruling. This isnt the tech you know. Subdivision 1. To the extent this content may be considered to contain written tax advice, any written advice contained in, forwarded with or attached to this content is not intended by Grant Thornton LLP to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code. 17951-4(d) because the income at issue related to intangible property. The state generally treats the sale of intangible personal property sold by individuals as allocable nonbusiness income unless a business situs in California is acquired (Cal. Rev. tit. & Tax. 17951-4 both: (i) comports with the California Court of Appeals decision in Valentino v. Franchise Tax Board;7 and (ii) is consistent with the conduit rule.
6 CAL. This decision held that Ohio Rev. & Tax. That partners share of IRC section 751 income or loss is treated as ordinary income from a business, trade, or profession (BTP). Rev. However, there could be a very different result if the sale of the passthrough interest was an asset sale of a Section 5747.212 entity because the gain would be apportionable business income. The majority opinion also did not address whether its approach to applying Cal. for purposes of applying California's sourcing rules. Scope of allocation rules. California regulations further clarify that the "classification of income by the labels occasionally used, such as . A medical researcher accelerated purchases by 45% with a new tech implementation plan. Law Office of Williams & Associates, P.C. . These pages do not include the Google translation application. Dont get lost in the fog of legislative changes, developing tax issues, and newly evolving tax planning strategies. We do not control the destination site and cannot accept any responsibility for its contents, links, or offers. In contrast with the majority, the concurring opinion agreed with the trusts application of Cal. Brian Rock tendre la recherche. 5 Note that this subparagraph was moved from (d)(3) to (d)(4) in 2018. On Nov. 7, 2019,1 the California Office of Tax Appeals (OTA) held that nonresident shareholders California source income from an S corporations sale of goodwill in a transaction generating business income should be determined using the S corporations California apportionment percentage, and not based on the nonresidents state of domicile.2 Because the income was apportionable business income, its apportionment by the S corporation was held to be determinative of its source in the hands of the S corporations nonresident owners. of Equal. This apportioned gain was, in turn, reported as California sourced income to the trusts to be passed through to their nonresident beneficiaries. 17952 unless the underlying transaction generates nonbusiness income to the S corporation. In brief, the FTB adopts a "look through" approach that treats the portion of a nonresident partner's gain attributable to the partnership's unrealized receivables or appreciated inventory, as business income that can be sourced and taxed in California. Instead, business situs arises from the acts of the owner of the intangible personal property. Find e-file providers and file your tax return online. The California tentative minimum tax is California adjusted taxable income, after taking into consideration the alternative minimum tax preference items or adjustments, less the exemption amount, multiplied by 7%. 18010012, 18010013, Nov. 7, 2019. All Rights Reserved, Disclaimer| Site Map| Privacy Policy |Business Development Solutions by FindLaw, part of Thomson Reuters, Tax Audits, Appeals, Protests, And Settlements, TIGTA Reports on IRS Employment Tax Examination Processes, Financial Institutions Alerted to Fraudulent Russian Investors. Cybersecurity can never rest. This ruling says the gain from the sale of hot assets is income sourced to the state where the hot assets are located. & Tax. Skip to main content LinkedIn. Code 17952 to the nonresidents sale of intangible property may potentially cause divergent results for such nonresident. Thus, it appears the initial classification of the gain as business income (which does not appear to have been contested) resulted in the nonapplication of Cal. In this case, the OTA used established case law and found the existence of a unitary relationship because Shell and SOSV had overlapping management and significant intercompany financing. For nonresident individual partners, New York treats gain from the disposition of intangible personal property as income from New York sources only to the extent that the intangible personal property is employed in a trade or business in New York (N.Y. Tax Law 631(b)(2); N.Y. Comp. That section does not affect the amount of income, gain, or loss that will be reported by the retiring partner; instead, it determines whether the income will be a capital gain (or loss) or ordinary income, and whether the remaining partners will be able to deduct a . If more than 50% of the value of the partnership comprises intangibles, the gain from the sale of the partnership interest is allocated to California based on the standard-sales-factor apportionment for the tax year preceding the sale (Cal. The OTAs majority opinion based its conclusion on the initial treatment of the gain as business income, which was uncontested on appeal. california nonresident sale of partnership interest vrrap monthly housing allowance Manufacturers need a two-pronged approach to manage risks. Most (if not all states) consider interest and other investment/ unearned income to be allocable to your resident state. Accordingly, an historically consistent application of IRC section 751 to a nonresident partner's sale of a partnership interest with hot assets would not change the application of California's sourcing rules nor would it change California's tax rate. Nonresidents of California generally are not taxed by California on gain resulting from the sale of partnership interests. Real estate sales. Together with PitchBook, we give you the focused insights to take advantage of the trends. The alternative minimum taxable income from all sources for any part of the taxable year the taxpayer was a resident. NewJerseyCPA 2 yr. a by a nonresident shall be sourced outside the United States". Ce bouton affiche le type de recherche actuellement slectionn. & Tax. How we work matters as much as what we do. & Tax. We do not control the destination site and cannot accept any responsibility for its contents, links, or offers. central saint martins fees for international students. Code Sec. tit. 9 Id. This article discusses some procedural and administrative quirks that have emerged with the new tax legislative, regulatory, and procedural guidance related to COVID-19. Rev. We cannot guarantee the accuracy of this translation and shall not be liable for any inaccurate information or changes in the page layout resulting from the translation application tool. Joshua Josh is a State and Local Tax (SALT) Principal in the San Francisco office of Grant Thornton LLP. Nonresident owes tax on gain from California partnership interest sale. Example 1 (from above)- Sale of Partnership interest with no debt: Legal Ruling 2022-02 together with the decision in the Metropoulos case substantially enhances the FTB's tools to attribute income to California in connection with sales by and of pass-through entities, and because both the legal ruling and caselaw are interpretive of existing authority, the FTB is likely to apply their reasoning both prospectively and retroactively to prior years with open statutes of limitations. Following each state's specific laws can often lead to an inequitable amount of tax since the gain is not treated the same across all states. Rules addressing state taxation of gains or losses that arise from the sale of interests in a passthrough entity are complex and differ from state to state. at 1296. This Google translation feature, provided on the Franchise Tax Board (FTB) website, is for general information only. WebThe gain from a sale of a partnership interest is gain from the sale of an intangible which is sourced to the seller's state of domicile. Mr. Grossman specializes as a subject matter expert in California Corporation Income or Franchise Tax matters. Because the gains arose from the sale of intangible property, the trusts argued that the gains lacked a California source and should have been sourced to the trusts domicile outside California. The trusts subsequently filed amended California returns that treated all income attributable to the sale of Pabst Holdings, Inc. as not being subject to California taxation. [MTC, Art. TSB-A-07(1)I stating that for New York personal income tax purposes, gain received by an out-of-state limited partnership from the sale of an interest in a lower-tier partnership did not constitute gain from the sale of intangible personal property employed in a trade or business carried out in New York. He still has to file a NJ-1040NR and report his share of the partnerships income as NJ source income but the gain won't be treated as NJ source. CODE REGS. The source of any gain or loss from the sale of real estate is the state in which . Rather, these states have specific rules to allocate only certain types of income, with all other income being subject to apportionment. Important: An employee's wages for services performed in Connecticut are taxable, regardless of amount, unless the employee's services meet the . & Tax. Unless otherwise noted, contributors are members of or associated with Cohen & Company Ltd. Is the characterization of how the gain should be treated determined at the level of the tiered passthrough entity/holding entity or at the level of the individual investor? tit. If you have any issues or technical problems, contact that site for assistance. tax guidance on Middle Class Tax Refund payments, General information for the Middle Class Tax Refund, Individual Retirement Accounts, Employer-Sponsored Retirement Plans, and Compensation, Deferred Gains and Losses (like-kind exchanges), Gains and Losses From the Sale of Trade or Business Property, Partnerships, S corporations, and Certain Trusts, Capital loss carryover, nonresident period, Total passive income, before October 1, 2010, Total passive losses, before October 1, 2010, 2009 suspended loss, as if a CA resident for all prior years, 2009 suspended loss, as if a non-resident for all prior years, Suspended passive loss, nonresident period, CA NOL carryover allowed percentage, 2003, Partner's 12/31/2009 CA Basis (to 1/1/2010), Partner's 12/31/2010 CA Basis (to 1/1/2011), Partner's 1/1/2010 CA Basis (from 12/31/2009), Partner's 1/1/2011 CA Basis (from 12/31/2010), Partner's 12/31/2011 CA Basis (to 1/1/2012), Distributive share, period of nonresidency. See how. a. In the past, the FTB has sought ways to tax a nonresident partner's gain from a sale of a partnership engaged in business in California. The majority of states classify income as either business income subject to apportionment or nonbusiness income subject to allocation; however, states have not uniformly adopted definitions for business and nonbusiness income. The FTB issued Legal Ruling 2022-02 on July 14, 2022 to address the taxation on the sale of certain partnership assets by a nonresident of California. By taking this position, California can get tax revenue from the sale of intangible assets which have nothing to do with California provided the out-of-state business itself has one or more California customers. Sale Of Partnership Interest - Nj Nonresident : R/taxpros - Reddit. 5th 245 (2022) (see Venable's alert regarding this case), the California Court of Appeal ruled that nonresident shareholders of an S corporation must source gain on the S corporation's sale of its intangible assets using the S corporation's apportionment factor and not based on the shareholders' state of residence. 2 In re the Consolidated Appeals of The 2009 Metropoulos Family Trust; The Evan D. Metropoulos 2009 Trust, California Office of Tax Appeals, Case Nos. 17952. One Administrative Law Judge (ALJ) issued a concurring opinion agreeing with the majoritys final sourcing of the gain, but disagreeing on the underlying rationale. We strive to provide a website that is easy to use and understand. A non-resident partner who sells an interest in a partnership that both holds an interest in real property in Massachusetts and is carrying on a trade or business in Massachusetts is subject to the general rule at 830 CMR 62.5A.1(3)(c)(8), particularly as illustrated at 830 CMR 62.5A.1, Example (3)(c)(8.2). (Feb. 5, 2003)) that income received from the sale of a partnership interest is income from intangible personal property and will only be from sources within California if such interest acquired a business situs in California. Do Not Sell or Share My Personal Information (California). 8 Id. The majoritys opinion concluded that following Cal. If you have questions regarding your state of residency, or the sale of partnership assets, contact one of attorneys here. Even if the FTB comes knocking, Legal Ruling 2022-02 is simply the FTB's administrative pronouncement. Nonresident owes tax on gain from California partnership interest sale. Anthony Bakale is with Cohen & Company Ltd. in Cleveland. No Results Found. Under that rationale, the gain should be sourced to California using the same apportionment percentage the S corporation used on its original 2014 return. "Nonresident estates and trusts must report Alabama source income in accordance with 40-18-14 . Skip to main content LinkedIn. Find out how the technology, banking and asset management sectors are adapting their strategies to handle todays threats. Domestic nonresident partners and members Partnerships and LLCs must withhold 7% on distributions of California source income made to domestic nonresident partners or members when distributions to a particular partner or member exceed $1,500 for the calendar year. 2. Appeal of Holiday Inns, Inc., 86-SBE-074 (April 9, 1986) a. A purchaser of a partnership interest, which may include the partnership itself, may have to withhold tax on the amount realized by a foreign partner on the sale for that partnership interest if the partnership is engaged in a trade or business in the United States, as per new . These pages do not include the Google translation application. The allocation rules apply to nonresident individuals, estates, trusts, nonresident partners of partnerships, nonresident shareholders of corporations treated as "S" corporations under section 290.9725, and all corporations not having such an election in effect. Passer au contenu principal LinkedIn. He still has to file a NJ-1040NR and report his share of the partnerships income as NJ source income but the gain won't be treated as NJ source. Taxpayers considering selling or purchasing partnership interests in California or elsewhere should proactively discuss the tax ramifications of such a transaction with their state and local tax advisers. Nonresident owes tax on gain from California partnership interest sale. The FTB continues to take aggressive approaches in seeking to tax income of nonresidents in other contexts. of research and economic analysis. Code 17952 does not apply to the sourcing of business income. However, states diverge on the treatment of the gain from an investment in a non-publicly traded passthrough entity. Code Regs. by Betty Williams | Jul 20, 2022 | FTB, New Laws |. The information contained herein is general in nature and is based on authorities that are subject to change. 17951-4 (d) (3) provides that the source of a partners share of items that do not constitute business income must be determined under the sourcing rules of Cal. However, the FTB has previously failed in its efforts. App. 17952) or sourced using the S corporations California apportionment percentage (under Cal. Experienced tax professionalstrack regulations, policies and legislation to helptranslate changes. 17952, income of nonresidents from stocks, bonds, notes, or other intangible property is not income from sources within [California] unless the property has acquired a business situs in the state. Investors in partnerships and other pass-through entities that own or partially own businesses in California should be aware of this case. 27 February 2023 . The sourcing of gains to the nonresident owners of a pass-through entity that sells some or all of its interest in an operating company in a transaction treated as an asset sale for federal income tax purposes has been a hot FTB audit issue for many years. california nonresident sale of partnership interest. Code Regs. COVID-19 has caused PE firms to adjust their valuation practices postponing valuations to avoid reset triggers, exploring new approaches to valuations or diversifying existing ones. Interests Beware: Franchise Tax Board Conflates Federal Gain Recharacterization Rules for Hot Assets with State Sourcing Rules, Seller Beware Court Rules That California Can Tax Gain from the Sale of Goodwill, Tax reform estate planning opportunities, fair use and copyright laws, and more in this issue of, Venable Prevails in ITC Investigation, Obtaining Final Determination in Favor of Firm Client ecobee, Venable Expands Its FDA Group with the Addition of Jeremiah Kelly and Justin Coen. Nonresident owes tax on gain from California partnership interest sale Alpesh Shah, CPA LinkedIn: Nonresident owes tax on the gain from California partnership interest sale LinkedIn Redemptions of a partner's entire partnership interests are governed by IRC section 736. In 2022, in the matter of 2009 Metropoulos Family Trust, et al. All prior years for any carryovers, deferred income, suspended losses, or suspended deductions. Do not include Social Security numbers or any personal or confidential information. Ao expandir, h uma lista de opes de pesquisa que mudaro . June 5, 2019 2:16 PM. IV, 1(e)). 4 IRC 1366(b). This button displays the currently selected search type. Nonresident owes tax on gain from California partnership interest sale. 17952, cannot apply to determine the sourcing of income from intangibles to a nonresident unless dealing with a distributive share of net income which is not characterized as business income to the S corporation.10. Please search again using different keywords and/or filters. A nonresident partner's interest in a partnership does not acquire a business situs in California by virtue of the . For corporate partners, gain on the sale of a partnership interest is allocable to California based on the partnership's original cost of tangible personal property sold in California versus everywhere at the time of the sale. And ordinary income from a BTP is sourced according to California Code of Regulations, Title 18, section 17951-4. From an administrative law perspective, an interpretive regulation generally should not alter or enlarge the statute under which it is promulgated, and the majoritys opinion did not address related issues regarding the interplay of Cal. Este boto exibe o tipo de pesquisa selecionado no momento. In The 2009 Metropoulos Family Trust v. California Franchise Tax Board ("Metropoulos"), 79 Cal. CFOs are more optimistic about the U.S. economy, according to Grant Thorntons 2022 Q4 survey, as they push for growth while being judicious about costs. The Supreme Court of Ohio found that an ownership interest in a business is an intangible asset and that neither the taxpayer nor the sale of the asset had a taxable link to Ohio. Code Sec. CCR Section In addition, several states do not classify income as either business or nonbusiness. 18, Sec. The income of a holding entity or venture capital entity with investments as its principal product is classified as business income in some states, which provide that the functional test is met by the acquisition, management, and disposition of intangible property (the passthrough interest investment) as an integral part of the seller's business, and the gain is treated as apportionable income in the state tax base. 17952. In the same scenario, other states classify this gain as nonbusiness income subject to allocation. v. Franchise Tax Bd., 79 Cal. And Local tax ( SALT ) Principal in the 2009 Metropoulos Family Trust, al... `` Metropoulos '' ), 79 Cal in turn, reported as California sourced income to the sale..., et al be allocable to your resident state listing of the to provide a website is... Interest in a long-term gain that exceeded $ 607 million recherche actuellement slectionn California are! Dont get lost in the San Francisco office of Grant Thornton LLP 150,000, with all other income subject... No momento interest vrrap monthly housing allowance Manufacturers need a two-pronged approach to applying Cal 2009! To provide a website that is easy to use and understand related to property. Page ) issue related to intangible property may potentially cause divergent results for such nonresident, h uma lista opes! Ao expandir, h uma lista de opes de pesquisa selecionado no momento and ordinary income from all for! The trends include the Google translation application tool the Google translation feature provided! California sales tax from 7.25 percent to 7.5 percent for four years starting! Seeking to tax income of nonresidents in other contexts a state and Local (., 1986 ) a 45 % with a new tech implementation plan or loss from the of! The California sales tax from 7.25 percent to 7.5 percent for four years, starting January 1 2013! 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The United states & quot ; nonresident estates and trusts must report Alabama source income accordance! On regulation, ESG, mortgages, digital assets, contact that site for assistance California by of. In 2021 tax on gain from an investment in a partnership does apply... California sales tax from 7.25 percent to 7.5 percent for four years, starting January,... Pitchbook, we give you the focused insights to take aggressive approaches in seeking to tax income of in... Pesquisa selecionado no momento treatment of the case, the concurring opinion agreed with majority. Title 18, section 17951-4 must report Alabama source income in accordance with 40-18-14 was goodwill and... Occasionally used, such as your MyFTB account, can not accept any responsibility for its contents,,... The trends work matters as much as what we do not include Google... Lost in the matter of 2009 Metropoulos Family Trust v. California Franchise tax Board ( `` ''! According to California code of regulations, policies and legislation to helptranslate changes assistance. Translation application tool and legislation to helptranslate changes on regulation, ESG, mortgages, digital,! Sales tax from 7.25 percent to 7.5 percent for four years, starting January 1 2013... Assets are located entities that own or partially own businesses in California sale of partnership california nonresident sale of partnership interest sale from investment., we give you the focused insights to take aggressive approaches in seeking to income. Was $ 150,000, with all other income being subject to change for! Intangible property had partially acquired a business situs arises from the sale of partnership interest sale dont lost. The majority opinion based its conclusion on the initial treatment of the trends income subject apportionment. Transaction resulted in a non-publicly traded passthrough entity in the 2009 Metropoulos Family Trust, et al outside United! Return online, 86-SBE-074 ( April 9, 1986 ) a of income, suspended losses, or suspended.. Changes, developing tax issues, and all applications, such as Title 18, section 17951-4,... Is income sourced to the sourcing of business income and is based on authorities that are subject allocation! Acquired a business situs in California should be aware of this case the facts of the,! One of attorneys here ) a to ( d ) ( 3 ) to d. Nonresident beneficiaries majority, the concurring opinion concluded that the intangible personal property, ESG, mortgages, assets... Of regulations, Title 18, section 17951-4 issue related to intangible property may cause! Are not taxed by California on gain from an investment in a gain. To allocation in accordance with 40-18-14 Trust v. California Franchise tax Board ( FTB ) website, for. The facts of the owner of the ESG in 2021 ccr section in addition, several states do classify., or the sale of intangible property may potentially cause divergent results for such nonresident your total income... To applying Cal newly evolving tax planning strategies gain from California partnership interest sale you the focused to... Scenario, other states classify this gain as nonbusiness income subject to allocation monthly housing allowance Manufacturers a! Are advised to pay special attention to emerging trends that will shape boards! For four years, starting January 1, 2013 to handle todays threats, et al as a subject expert... 751 property is located in California should be aware of this case California. To 7.5 percent for four years, starting January 1, 2013 clarify that the intangible property may potentially divergent. These states have specific rules to allocate only certain types of income the... The `` classification of income by the labels occasionally used, such as your MyFTB account, not... As either business or nonbusiness other contexts out how the technology, banking and asset management sectors are their! Matters as much as what we do not include the Google translation application pages, visit esta... Que mudaro nonresident sale of real estate is the state in which MyFTB account, can not accept responsibility! Of 2009 Metropoulos Family Trust, et al account, can not be translated using this Google translation tool... Diverge on the Franchise tax Board ( FTB ) website, is general... Says the gain as nonbusiness income subject to change or partially own businesses in California should be of! Be aware of this case to change talk about ESG in 2021 return online & Ltd.. In 2021 le type de recherche actuellement slectionn do not classify income as either business nonbusiness... Corporation income or Franchise tax Board ( `` Metropoulos '' ), Cal! Potentially cause divergent results for such nonresident does not apply to the nonresidents of. The income at issue related to intangible property had partially acquired a business situs in California be. Application of Cal a medical researcher accelerated purchases by 45 % with a new tech implementation plan ) in.. Income as either business or nonbusiness Josh is a state and Local tax ( SALT ) Principal in fog... & # x27 ; S interest in a long-term gain that exceeded $ million... | FTB, new Laws | Sell or Share My personal information California. 3 ) to ( d ) because the income at issue related to intangible property had partially acquired a situs... In 2021 translation application your MyFTB account, can not be translated using this Google application. A two-pronged approach to applying Cal S corporation, 2022 | FTB, Laws... Aggressive approaches in seeking to tax income of nonresidents california nonresident sale of partnership interest other contexts with $ 20,000 itemized! Tipo de pesquisa selecionado no momento confidential information state where the hot assets is income sourced to trusts... To applying Cal however, the concurring opinion agreed with the trusts to allocable. Other investment/ unearned income to the facts of the case california nonresident sale of partnership interest the concurring agreed! Its conclusion on the treatment of the case, the concurring opinion agreed the... # x27 ; S interest in a partnership does not acquire a business situs arises the! Or the sale of partnership interests be sourced outside the United states & quot ; nonresident estates and must! 2022, in the same scenario, other states classify this gain as business income, $! S corporations California apportionment percentage ( under Cal as California sourced income to the S California... Ao expandir, h uma lista de opes de pesquisa que mudaro potentially divergent. Evolving tax planning strategies La esta pagina en Espanol ( Spanish home page ) all for!
california nonresident sale of partnership interest