New Partnership Debt Allocation Regulations: Applying Risk of Loss Analysis to IRC 707 Disguised Sale Rules

Restoring Use of Leveraged Partnerships and Asset Drop-Down Transactions, Preserving Deferral Treatment

This program is postponed. New date TBD.

A live 110-minute CPE webinar with interactive Q&A


Monday, December 31, 2018

1:00pm-2:50pm EST, 10:00am-11:50am PST

(Alert: Event date has changed from 11/14/2018!)

or call 1-800-926-7926

This webinar will provide tax advisers with a practical guide to the new proposed IRS guidance on partnership recourse debt allocation. The proposed regs largely undo the controversial 2016 rules governing the allocation of partnership liabilities and partnership “disguised sales.” The panel will discuss the new regulations within the context of the TCJA provisions limiting interest expense deduction, and detail the additional deferral opportunities using “leveraged partnerships.”

Description

In a remarkable development, the IRS on June 19, 2018, issued proposed regulations (REG-131186-17) governing the allocation of partnership liabilities among partners to apply the disguised sale rules. The proposed regulations represent a reversal of regulatory guidance issued less than 24 months ago, and will restore deferral opportunities using “leveraged partnerships.”

The 2016 regulations changed the allocation of partnership liabilities under the Section 707 disguised sale rules. The prior rules precluded a taxpayer who contributed property to a partnership from allocating debt based on the contributing partner’s economic risk of loss (ROL) to apply the disguised sale rules. This had the effect of extending the disguised sale rule analysis and created taxable gain out of many previously untaxed partner contributions.

The 2018 proposed regulations reverse the 2016 regulations about debt allocation under Section 707. Partners may now apply the economic risk of loss test to allocate partnership liabilities concerning the disguised sale rules, with some exceptions retained from the 2016 regs. Further, the new rules allow taxpayers to elect to apply the 2018 proposed regulations to transactions where the 2016 temporary regulations would otherwise apply, allowing taxpayers to choose the rules governing the contribution. This creates significant opportunities for partnership tax advisers.

Listen as our experienced panel provides a critical first look at the new partnership debt regulations and offers practical guidance on protecting client partnerships from costly tax consequences.

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Outline

  1. 2016 temporary and proposed regulations and impact on leveraged partnerships and asset drop-down transactions
  2. Section 707 disguised sale rules
  3. Distinguishing recourse from nonrecourse debt
  4. New proposed regulations reversing the 2016 rules
  5. Applying the “economic risk of loss” analysis to the allocation of partnership debt for purposes of Section 707
  6. Retention of 2016 rules restricting “bottom dollar payment obligations”
  7. Restoring planning opportunities with leveraged partnerships

Benefits

This panel will help practitioners navigate the challenges posed by the new regulations by discussing these and other important topics:

  • Distinguishing recourse from nonrecourse partnership debt
  • The impact of the new regulations on everyday business transactions, such as leveraged partnerships and asset drop-down transactions
  • Allocating debt based on the economic risk of loss to contributing partner
  • What parts of the 2016 rules do the new proposed regulations reverse, and which parts do they keep?

Faculty

Blair, Anna
Anna Blair

Atty
Wick Phillips Gould & Martin

Ms. Blair advises clients on federal income tax and Texas state tax planning applicable to partnerships, limited...  |  Read More

Additional faculty
to be announced.

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