Payoffs Using Appreciated Stocks - Are You Guyz Sure?
Jerry and I have constantly advocated using appreciated stocks to pay off departing members. Recently, we were asked...
An accountant in our club believes there may be tax liabilities to a partnership when transfering securties to a departing member (not selling stock, just transfering shares).
It is my understanding, although I'm by no means an accountant, that the club and its remaining partners incur no tax liability when the club chooses to transfer shares to a departing member.
Who is right, and where might we look to find the actual IRS rules dealing with partnerships and transferred securities?
There has been a great deal of confusion about marketable securities.  Under Partnership Distributions (Marketable securities treated as money),  of Publication 541, any confusion is resolved:
Generally, a marketable security distributed to a partner is treated as money in determining whether gain is recognized on the distribution.  The treatment, however, does not generally apply if .  . an investment partnership made the distribution to an eligible partner.
Section 731 of the IRS code defines investment partnership and eligible partners.
The term ''investment partnership'' means any partnership which has never been engaged in a trade or business and substantially all of the assets (by value) of which have always consisted of -
(I) money,
(II) stock in a corporation,
(III) notes, bonds, debentures, or other evidences of indebtedness
An eligible partner is any partner who contributed only cash, or shares of stock in a corporation, or other financial instruments, to the partnership.
So, yes, we are sure. A partnership does not realize taxable income when it distributes appreciated stocks to a member. Furthermore, the partner does not realize taxable income on the stocks distributed until the stocks are sold.
For more details of the advantages of using appreciated stocks for partner payoffs, see..........
Member Withdrawals - payout options for your club.

Thanks for using bivio, and for submitting a question that could be of interest to a lot of people.
Rip West
Saint Paul, MN