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Form 966 UT: What You Should Know

This letter is sent to every corporation to clarify the procedures to be used in determining transfer or sale prices and upon petition for a ruling or order by the Commission. For your Form 971 (Rev. July 2011) (A corporation or partnership) the requirements for the filing of Form 971 are set out in Internal Revenue Code Section 6053(a)(1). In general, a sale or exchange of all or any part of a partnership, for an amount which constitutes a loss or an increase in basis, is treated as a sale or exchange by the partnership of all of its assets rather than as a sale or exchange of a partnership interest. A change in a partnership's membership which would be substantially similar to the membership in the partnership prior to the change in membership (for example, a change in the number of shares of any class) will be considered a member of a partnership. When the change is significant for purposes of determining gain, such change will be treated as a change in the membership. In addition, in certain situations a sale or exchange of assets will be treated as a sale or exchange of a partnership interest which is substantially similar to the assets being sold or exchanged by reason of the presence of the sale or exchange of the same or substantially similar assets in the partnership interests held by persons other than the partnership members. These situations are described in IRC Section 6057 and IRC Section 6059. IRC Section 6664(c) will apply for transfer or sale of assets which have been held as a partnership interest to a person other than the partnership member. The sales or exchanges of such assets will be treated as sales or exchanges of partnership interests, but for purposes of determining gain, a partnership interest will be treated as a partnership interest. IRC Section 1031 will apply for partnership transactions if, after June 15, 1994, the partnership has owned or held for more than 90 days any property which is used primarily in business activities (other than income or gain) of the partnership or which bears interest to the extent that the interest was derived at least in part from the income or the sales of property of the partnership. (This does not mean that all partnerships are treated as being controlled entities.) If the partnership has engaged in a nonbusiness activity, the partnership is treated as owning or holding for 60 or 90 days any property which was used primarily in business activities if all such properties have been held by the partnership for less than 90 days.

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