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Unfortunately, while that sounds like a great idea, it will not fly. It is not the original basis but the basis at the date of gift which counts. Therefore, you will need to determine the prevent basis in the business before making the gift(s).Additionally, the gift to your children would not create a capital gain but could create a gift tax concern. You also should get the agreement of the 40% owner before making any transfers (the partnership agreement may spell the process out in your case).
Nevertheless, there is a light at the end of this and it can avoid gift taxes.You can make a gift of up to $13,000 to each of your children each calendar year without creating the need to file a gift tax return. If you are married, you can give 1/2 the business ownership to your spouse and he/she can also do the $13,000 per person tax free gifting. Thus, with 5 children, you can gift $65,000 this year and every year after. Your spouse can do likewise and the transfer between you and your spouse is also tax free.
At the other end of the spectrum if the gifts exceed the $13,000 per person per year limit you will need to file a gift tax return. If the gifts exceed a total of $5,000,000 (yes million) you may even have to pay a gift tax. Below that level there will be no gift tax imposed (unless the laws change again).