rp-01-43.pdf

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Part III
Administrative, Procedural, and Miscellaneous
26 CFR 601.201: Rulings and determination letters.
(Also Part I, '' 61, 83, 721; 1.721-1.)
Rev. Proc 2001-43
SECTION 1. PURPOSE
This revenue procedure clarifies Rev. Proc. 93-27, 1993-2 C.B. 343, by providing
guidance on the treatment of the grant of a partnership profits interest that is
substantially nonvested for the provision of services to or for the benefit of the
partnership.
SECTION 2. BACKGROUND
Rev. Proc. 93-27 provides that (except as otherwise provided in section 4.02 of
the revenue procedure), if a person receives a profits interest for the provision of
services to or for the benefit of a partnership in a partner capacity or in anticipation of
being a partner, the Internal Revenue Service will not treat the receipt of the interest as
a taxable event for the partner or the partnership. For this purpose, section 2.02 of
Rev. Proc. 93-27 defines a profits interest as a partnership interest other than a capital
interest. Section 2.01 of Rev. Proc. 93-27 defines a capital interest as an interest that

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would give the holder a share of the proceeds if the partnership=s assets were sold at
fair market value and then the proceeds were distributed in a complete liquidation of the
partnership. Section 2.01 of Rev. Proc. 93-27 provides that the determination as to
whether an interest is a capital interest generally is made at the time of receipt of the
partnership interest.
SECTION 3. SCOPE
This revenue procedure clarifies Rev. Proc. 93-27 by providing that the
determination under Rev. Proc. 93-27 of whether an interest granted to a service
provider is a profits interest is, under the circumstances described below, tested at the
time the interest is granted, even if, at that time, the interest is substantially nonvested
(within the meaning of ' 1.83-3(b) of the Income Tax Regulations). Accordingly, where
a partnership grants a profits interest to a service provider in a transaction meeting the
requirements of this revenue procedure and Rev. Proc. 93-27, the Internal Revenue
Service will not treat the grant of the interest or the event that causes the interest to
become substantially vested (within the meaning of ' 1.83-3(b) of the Income Tax
Regulations) as a taxable event for the partner or the partnership. Taxpayers to which
this revenue procedure applies need not file an election under section 83(b) of the
Code.

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SECTION 4. APPLICATION
This revenue procedure clarifies that, for purposes of Rev. Proc. 93-27, where a
partnership grants an interest in the partnership that is substantially nonvested to a
service provider, the service provider will be treated as receiving the interest on the date
of its grant, provided that:
.01 The partnership and the service provider treat the service provider as the
owner of the partnership interest from the date of its grant and the service provider
takes into account the distributive share of partnership income, gain, loss, deduction,
and credit associated with that interest in computing the service provider=s income tax
liability for the entire period during which the service provider has the interest;
.02 Upon the grant of the interest or at the time that the interest becomes
substantially vested, neither the partnership nor any of the partners deducts any
amount (as wages, compensation, or otherwise) for the fair market value of the interest;
and
.03 All other conditions of Rev. Proc. 93-27 are satisfied.
SECTION 5. EFFECT ON OTHER DOCUMENTS
Rev. Proc. 93-27 is clarified.
SECTION 6. DRAFTING INFORMATION
The principal author of this revenue procedure is Craig Gerson of the Office of
the Associate Chief Counsel (Passthroughs and Special Industries). For further

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information regarding this revenue procedure contact Craig Gerson on (202) 622-3050
(not a toll free call).