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Other Entities		 Partnerships

Partnerships (and multi-member limited liability companies are treated as partnerships for tax purposes) are very flexible. Preferred interests and "special allocations" of income and loss for tax purposes may be "built in" to the partnership agreement or the operating agreement.

Partnerships and limited liability companies enjoy tax-free contributions to capital and return of capital, an increase of partners' income tax bases for partnership debts, and a special election to adjust the basis of partnership assets ("inside basis") upon the death of a partner or the purchase of a partnership interest (a "754 election"). There are a number of other tax advantages that partnerships enjoy over corporations, including the following:

bulletCorporations cannot make "special allocations" of income or loss;
bullet"S" corporations may not have preferred stock;
bullet"inside" basis of corporate assets is never adjusted upon the sale of stock or the death of a shareholder, and corporate debt does not cause the shareholder's basis in their stock to increase.
bulletContributions to the capital of domestic corporations may be tax free (if the persons making the contributions to capital are "in control" of the corporation thereafter), but liquidation and dissolution of a corporation always triggers recognition of gain or loss (even "S" corporations).