For various business and tax reasons, two or more partnerships may choose to consolidate their operations pursuant to a partnership merger. Whatever the reasons for a partnership merger, careful consideration of federal income tax consequences is generally no less important than in the case of a corporate merger transaction. This article begins by describing the partnership termination rules, including both the general rule under section 708(b)(1) and the special merger exception under section 708(b)(2)(A). This discussion, combined with the subsequent description of the characterization of partnership merger transactions of the Internal Revenue Service (IRS) in existing rulings, form the basis for analyzing the federal income tax consequences of partnership mergers. Notwithstanding existing IRS rulings, the limited administrative law in this area is insufficient to plug all of the gaps necessary to provide adequate certainty to taxpayers planning partnership mergers. This article suggests the means through which the IRS could resolve much of this ambiguity. Finally, this article concludes with a discussion of certain issues and suggestions related to further development of the statutory rules applicable to partnership mergers. The suggestions are based upon an underlying policy objective of permitting tax-free reorganizations of partnerships, where the economic activities and interests of the partnerships and partners have not changed significantly.

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