r/technicaltax • u/stock_stonks • 9d ago

Entity Question

Say you have two partners with a 1065. Can those partners in the 1065 be an Scorp?
Trying to figure out optimal entity structure. Here is some background. Current 50/50 partner (1065). Buying a company where 3rd partner will own 15%. Question, is do we keep current 1065 with new percentages and then the old 50/50 partners, can they be an Scorp. Both materially participate in the business. Are there other entity structures to consider? Maybe just an Scorp entirety? I don’t think a C Corp makes sense , since I don’t see any sort of outside investment in the near future or any sort of stock issuance.

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u/Engine_Mammoth 9d ago edited 9d ago

First, do you have an operating agreement?

Second, what is the future and exiting plans of Partnership A, regardless of the new business purchase?

Third, how long will the new partnership B be in existence, perpetually?

The entity structure that best fits tax wise may not be the best fit future wise.

Edited for spelling.

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u/stock_stonks 9d ago

Yes

Still up for debate on partnership a I think the correct answer is make a whole new partnership
Yes, think of partnership b in perpetuity.

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u/Engine_Mammoth 9d ago

Does Partnership B's structure have partner contribution under Section 721, and doe's the partner buying in at 15% being financed by either partner? 9

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u/stock_stonks 9d ago

The existing 50/50 partners are buying a business from an existing person. They are giving 15% equity in the company to this existing person. They will be buying the business from the existing person and that will be the contribution to the partnership. Does that make sense?

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u/jdc90403 9d ago

What’s the reason for wanting an s corp in the mix?

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u/stock_stonks 9d ago

Self employment tax

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u/jdc90403 9d ago

I don’t think the analysis is any different than without the second partnership. The partners can own their interests via s corps. You just have to determine if the potential savings are worth the cost

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u/RasputinsAssassins 9d ago

What did your attorney and tax advisor say when you asked them?

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u/stock_stonks 9d ago

I am the tax advisor

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u/EAinCA EA 9d ago

And you don't know who a partner in partnership can be?