Temporary Disguised-Sale Regulations Raise Concerns

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.