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There are subtle (and some not so subtle) differences between the two entities from a tax perspective as well.

One significant difference exists with respect to distributions of appreciated property. This article previously appeared in the Tax Assessment newsletter, published by the North Carolina Bar Association, and is reprinted with permission.

This article demon­strates how to ensure that such distributions do not cause unexpected tax results.

As a result of the fact that the maximum corporate tax rate exceeds the maximum individual rate for the first time in seventy-three years, there is renewed interest in "pass- through" entities (i.e., S corporations and partnerships) as tax-favored ways of conducting a business.

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This new provision impacts partnership tax advice and estate tax planning for partners, particularly family limited partnerships (FLPs) funded wholly or partly with marketable securities.

Also impacted will be FLP transactions structured with grantor retained annuity trusts (GRATs) as limited partners where distributions of marketable securities will be made from the FLP to a GRAT to fund all or a portion of the annuity payments to the grantor of the GRAT.

A partner generally recognizes gain on a partnership distribution only to the extent any money (and marketable securities treated as money) included in the distribution exceeds the adjusted basis of the partner's interest in the partnership.

Any gain recognized is generally treated as capital gain from the sale of the partnership interest on the date of the distribution.

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