my question is about when a 4 partner partnership(llp), when 2 of the partners decide to leave and do their own thing. the 2 partners that are leaving are the 2 partners that joined after the original 2 man partnership was formed. can the orginal partnership continue with the same E.I.number and just notify the irs that the partnership name will be changing because 2 of the partners will be leaving. smith, jones, williams and roberts, llp will now be just smith and jones, llp, with the same E.i.number or does the whole partnership have to be dissolved and a new one formed called smith and jones, llp. i would like this clarified.
>>does the whole partnership have to be dissolved and a new one formed<<
This is automatically done in a technical termination when 50% or more of the partnership interests are sold or exchanged. Getting a new E.I.N. for the new entity should be one of the easiest steps in the process, but I'm sure it's routinely ignored.
the 2 partners that are leaving are not being bought out and the 2 partnership interests are not being exchanged for 2 other partnership interests. there aren't any real asssets in the partnership. all the income that is earned every year is distributed to each partner, leaving the year end cash balance minimal. since the 2 partners are retiring from the partnership, i guess that is not a sale or exchange and thus not subject to a technical termination.
IIRC, the rules for getting a new EIN and the rules for terminating a partnership may be similar, but they're not exactly the same. Matter of fact, here's what IRS says about "Do I Need A New EIN?" on their website (see, esp., the last bullet):
"You *will not* [emph. in the original] be required to obtain a new EIN if any of the following statements are (sic) true.
.. ..The partnership declares bankruptcy.
.. ..The partnership name changes.
.. ..You change the location of the partnership or add other locations.
.. ..A new partnership is formed as a result of the termination of a partnership under IRC section 708(b)(1)(B).
.. ..50 percent or more of the ownership of the partnership (measured by interests in capital and profits) changes hands within a twelve-month period (terminated partnerships under Reg. 301.6109-1)."
It looks to me like the "shrunk" partnership doesn't have to get - shouldn't get - a new EIN even though it may have been subject to a "technical termination" in the circumstances you describe.
it looks to me like you don't need to get a new ein. i will just notify the irs that the partnership name is changing back to the original 2 partners and leave it at that. it sure would be nice if the irs regs were a little clearer on this matter but it is what it is.
Yeah, the regs come up short when they don't spell out what happens when two of four partners decide to just "leave and do their own thing." Darn those regs.
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