Using Turbo Business for 1065. Interest was transferred to a new partner from an existing partner for free. The software is asking if it was a sale or exchange. It was neither. How do I proceed? (This is a new and open biz with $0 Revenue).

[ThomasM125]

Since the transfer did not involve consideration it would not be a sale or exchange, so you would not check either box. A sale would involve the receipt of money and an exchange would involve the receipt of property, neither occurred in this case. On the off chance this causes an error message, choose an exchange, as clearly there was not a sale.

[l5482]

That worked marking neither. Thank you! However, there was an earlier question asking if there was an ownership change. If a partner transferred interest to a new partner for free, does that constitute an ownership change?

Thanks! 

[mgarry3416]

As a retired IRS agent I can say the sale or transfer of a partnership interest has a boatload of tax issues for all parties.  Even when no money is exchanged.   Issues include the basis for the new owner (both inside and outside basis) and taxable gain or loss for the old owner.   You should discuss with a tax professional for all the details.  For TurboTax treat this as a sale for $1.   

[l5482]

This is for a LLC multi-member (no revenue at all this year, still trying to get it off the ground making digital software). One member split their interest with the new member for free. It wasn't sold or exchanged. I thought the tax expert said because it wasn't a sale or exchange that I do not mark either. Now, based on the last comment I'm confused on what to do. Can another tax expert give input please?

[PatriciaV]

If the LLC has a new member this year, by definition there was an ownership change. This will trigger questions about the type of change, which you said can be reported as neither a sale or exchange. You will need to adjust percentages to bring the totals back to 100% for ownership, profit/loss, etc.

The basis issues mentioned by mgarry3416 are primarily the responsibility of the individual members.

For more information, see IRS Pub 541 - Adjusted Basis

@l5482