A lawyer who withdraws from a law partnership is taxable in the year of withdrawal on the amounts paid by the partnership

A lawyer was a partner in a SCP and withdrew from the firm on October 31, 2015, selling his shares to the other partners. The SCP’s withdrawal agreement specified the sale price of the shares as well as the share of profits earned between January 1 and October 31, 2015, to be paid to the transferring partner.

Following a tax audit of the lawyer, he received a reassessment proposal.administration determined that the lawyer should have reported income from his withdrawal from the SCP in 2015, specifically the capital gain realized upon the sale of his shares as well as his share of the allocated profits.

The lawyer, on the other hand, argued that since he had not received those sums, he was not required to report them and that the tax assessment was unfounded. He challenged the assessment all the way to the Administrative Court of Appeals.

Taxation of Capital Gains on the Sale of a Lawyer’s SCP Shares

The Court will first rule that the capital gain realized upon the sale of the shares must be taxed in the year in which the gain arose, that is, the date of transfer of ownership of the securities. The capital gain is not taxable in the year in which the current fiscal year ends at the time of the transfer.

Contrary to the lawyer’s argument, the fact that the purchase price for the shares was not paid in 2015 has no bearing on this principle. The tax assessment against the lawyer is therefore upheld.

Taxation of the share of non-business profits allocated to the attorney

The Court first clarifies that, in the context of partnerships, the taxation of partners does not depend on whether they actually receive any amounts distributed by the partnership. It notes that a partner in a SCP is liable for tax on his or her share of the profits generated through the partnership as of the end of the fiscal year, regardless of whether those amounts are actually paid to the partner.

The Court thus notes that a share of non-business profits had been allocated to the attorney in the agreement terminating his membership in the SCP. He should therefore have reported, for the 2015 tax year, the share of profits allocated to him.

The tax assessment against the lawyer is also upheld on this point.

CAA Nancy, June 26, 2025, No. 23NC00342

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