IRS clarifies Rev. Proc. on partnership interest for services

Rev. Proc. 2001-43 addresses the treatment of a grant of a substantially nonvested profit interest for services, clarifying Rev. Proc. 93-27. Under Rev. Proc. 9327, the grant of a partnership profits interest for services is generally not taxed to the service provider, but the grant of a capital interest for services is. The time for determining whether a profits or capital interest has been granted is the time of receipt. The testing date for substantially nonvested profits interests has been unclear. Under Rev. Proc. 2001-43, the taxability of a receipt of a substantially nonvested profits interest is determined at the same time as a vested profits interest (i.e., at the time of receipt) if the taxpayer satisfies three requirements.