Be aware that part of the new tax law that came into effect January 1, 2018 imposes upon buyers of interests in U.S. entities taxed as partnerships (whether partnerships, LLCs, etc.) a new withholding requirement, under which the buyer of a partnership interest must withhold a 10% tax on the “amount realized” by the seller on the sale of a partnership interest where the seller does not provide a certification of non-foreign status. There are currently no exceptions to this rule. It is expected that the withholding will eventually be refundable in nature in situations where no tax is owed, though this remains unclear at this time.

For fund level transfers, this is likely to be more of a buyer-seller issue, to be handled by their private purchase and sale agreements. However, in the event of non-collection, the IRS may demand payment from the fund out of buyer’s distributions. So, there is at least some implication at the fund level, and this should be examined. In general, most LPAs I work with would allocate this sort of fund level tax payment to the particular partner and not to all partners generally – such that the result is fair.

Take further note that as implemented this will impact even GP-level dispositions where there is a purchase price (this may for example arise where a GP member joins late after earlier members have made capital contributions related to the GP’s capital interest, and pays some sort of purchase price for that interest).

This is a developing area which you should monitor. I expect further near-term developments are likely.