Possible consequences of options to acquire partnership interests

Unlike the corporate model, which benefits from preferential tax treatment in some aspects and with which practitioners have decades of experience, a grant of options in the partnership context involves a great deal of uncertainty. While the economics of the transaction are clear, the mechanics are much less so-even in the simplest situations involving noncompensatory options. Of the possible characterizations examined in this article, only the two bifurcation approaches yield anything like appropriate tax consequences.