In a significant development for nonresident investors and private equity structures, the California Office of Tax Appeals (OTA) held that gain attributable to IRC section 751(a) “hot assets,” such as unrealized receivables and inventory items, remain part of the sale of a partnership interest. As the sale of an intangible interest, the sale of partnership interest is generally sourced to an individual taxpayer’s state of residence under California Revenue and Taxation Code section 17952.
California OTA Rejects FTB’s IRC Section 751 Partnership Sourcing Theory
