The IRS issued temporary regulations under Sec. 707 (T.D. 9788) on Oct. 5, 2016 concerning how liabilities are allocated and when certain obligations are recognized for purposes of determining whether a liability is a recourse partnership liability. These regulations affect partnerships and their partners.
Under the temporary disguised-sale regulations, a partner’s economic risk of loss generally is not taken into account when determining the partner’s share of the partnership’s liabilities for purposes of applying the disguised-sale rules. Instead, liabilities generally are allocated in the same manner as excess nonrecourse liabilities, subject to certain restrictions (see Temp. Regs. Sec. 1.707-5T(a)(2)). This generally results in liabilities being allocated, for disguised-sale purposes, in accordance with each partner’s interest in partnership profits.
Adam Sweet, J.D., LL.M., Principal and Pass-through Entity Consulting Director at Eide Bailly co-authored “Temporary disguised-sale regulations raise concerns” recently published in The Tax Adviser for July, 2017 providing:
- An overview of the temporary regulations,
- Examples of how the regulations take effect, and
- Recommendations for future regulations.
The article has items of specific interest for partners and partnerships entering into (or contemplating entering into) transactions that could be considered part of a disguised sale. Click here to read the entire article. Contact your Eide Bailly professional or Adam Sweet with questions.