The transaction closes in a day. The tax consequences run for years: in basis adjustments, loss limitations, and elections whose deadlines pass quietly while everyone is focused on the deal itself. Whether the entity is a partnership, an S corporation, or a C corporation, ownership changes generate the same family of questions, answered by different parts of the Code.
Partnership interests: §754 and the inside-outside basis gap
When a partner buys an interest, they pay fair market value, but they inherit the partnership's historical inside basis in its assets. That gap is the reason §754 exists: with the election in effect, §743(b) adjusts the inside basis for the transferee on a sale or exchange (or on a partner's death), and §734(b) adjusts it after certain distributions. The recurring questions: is an election already in effect, is one worth making now, how is the §743(b) adjustment allocated among assets under §755, and what happens in tiered structures where the gap exists at more than one level. There are also situations where basis adjustments apply without an election (the substantial built-in loss rules), which is why "we never filed a §754 election" doesn't end the analysis.
Corporate losses: the §382 limitation
For corporations with net operating loss carryforwards, the danger zone is an ownership change, generally a more-than-50-percentage-point shift in 5-percent shareholders' ownership over a testing period. Cross it, and §382 caps the losses usable each year, broadly tied to the corporation's equity value at the change date times a published rate. Financing rounds are the classic quiet trigger: no one sold the company, but new investors shifted the ownership percentages. The follow-on questions (what counts toward the shift, how the limitation is computed, what happens to built-in gains and losses) are where the research time goes.
Redemptions, contributions, reorganizations
The rest of the transaction family has its own rules: whether a redemption is treated as a sale or a distribution turns on §302's tests; property contributions to partnerships carry §704(c) allocations for built-in gain or loss, and contributions to corporations turn on §351; and corporate reorganizations qualify, or fail to, under §368's precise definitions, with the tax result riding on the difference. In each case the deal documents describe what happened commercially; the Code decides what happened for tax.
The context problem
Transaction questions are context-heavy: the answer depends on the entity's election history, its debt structure, prior transactions, and what its agreements actually say. That's why Entity Intelligence gives each client entity its own workspace: the returns, agreements, and standing facts (a §754 election in effect since 2024, a Q1 refinancing) stay attached to the entity, so a question like "what does the §754 election require after the June sale?" can be one line instead of a page of background.
Answered from the Code, with the authority attached
Whatever the structure, the AI Tax Assistant answers transaction questions from the primary authority (the Code, the regulations, and rulings) with a clickable citation on every claim and a downloadable memo when you need something for the file. Bring it the deal; check its sources.
Shashank Sharma is the founder of Partnertax.ai, an AI tax assistant for tax professionals, built on cited IRS and Treasury sources.