Interests will not be considered to be “traded on an established securities market,” nor “readily tradable on a secondary market or substantial equivalent thereof,” unless there is a certain level of partnership involvement in the trading. The partnership must either:
- Participate in the establishment of the market or the inclusion of its interests in the market; or
- Recognize any transfers made on the market by redeeming the transferor partner (in the case of a redemption or repurchase by the partnership); admitting the transferee as a partner; or otherwise recognizing any transferee rights, such as a right to receive distributions or a right to acquire an interest in partnership capital or profits.
Treas. Reg. §1.7704-1(d)