ES NPA Holding, LLC v. Commissioner – Tax Court finds arm’s-length sale was best evidence of value

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Abstract: A U.S. Tax Court case recently addressed the issue of whether a taxpayer received a capital interest or a profits interest in a partnership for services provided to the partnership. Capital interests are immediately taxable, while profits interests generally are tax-deferred. This article summarizes this case, which concluded that the characterization of the taxpayer’s interest depended on the partnership’s fair market value. A sidebar provides ideas to bridge the gap between the seller’s asking price and the buyer’s offer price. ES NPA Holding, LLC v. Commissioner, T.C. Memo. 2023-55.