Where a U.S. limited partnership (USLP) is converted into a U.S. limited liability company (LLC), CRA has commented that the USLP is considered to have disposed of its assets at fair market value (FMV) and the holder of a partnership interest is also considered to have disposed of its interest at FMV. What is the adjusted cost base (ACB) of the membership interests in the converted entity (i.e. the LLC) to the members, as well as the LLC’s ACB in its assets immediately after the conversion? CRA responded:
[W]e are of the general view that a disposition of the partnership interests in the USLP and an acquisition of the membership interests in the LLC, as well as a disposition of the assets of the USLP and an acquisition of such assets by the LLC, would occur at FMV. Thus, the total ACB immediately after the conversion of all the membership interests in the LLC to the members would generally correspond to the total FMV at the time of the conversion of all the interests in the USLP. Furthermore, the LLC’s ACB in its assets immediately after the conversion would generally correspond to the FMV of these assets at the time of the conversion.
The above comments should be considered whenever there is a conversion … to U.S. limited liability partnerships or U.S. limited liability limited partnerships… .
… The CRA remains open to … an advance income tax ruling request… .