Partnership Debt Allocations and New IRS Regulations: Minimizing Tax Consequences

Meeting Challenges of IRS Crackdown on Leveraged Partnerships, Mitigating Liabilities Under the Disguised Sales Rules

Recording of a 110-minute CPE webinar with Q&A


Conducted on Thursday, December 7, 2017

Recorded event now available

Program Materials

This CLE/CPE webinar will provide tax advisers with a thorough and practical guide to the challenges of allocating recourse and nonrecourse partnership debt, including a critical review of the Treasury regulations issued under IRC §§707 and 752. These regulations significantly changed rules related to the allocation of partnership liabilities and partnership “disguised sales.” The regulations cut back sharply on deferral opportunities using “leveraged partnerships” and eliminate gain deferral through the use of “bottom guarantee” structures.

Description

The IRS issued a sweeping package of regulations which changed the rules governing the allocation of partnership liabilities, effective Oct. 2016. The new regulations cut back on deferral opportunities using “leveraged partnerships,” and eliminate gain deferral through the use of “bottom guarantee” structures. These new rules immediately and dramatically affected virtually all partnerships with debt as part of their funding structures.

Under the revised rules, bottom-dollar obligations defined in the regulation will no longer be considered recourse liabilities but will instead be treated as nonrecourse debt and allocated to all partners within the partnership. These changes will result in a scenario where a partner who serves as a guarantor for a loan to the partnership can be at economic risk for the amount of the guaranty, while not receiving any recourse debt allocation for the amount at risk.

While the U.S. Treasury reported to the President in Oct. 2017, proposing substantial revisions to certain of its regulations issued after Jan. 1, 2016, the report did not recommend significant changes to the proposed and temporary regulations on bottom-dollar guarantees.

While the focus of the initial regulations is related to debt structures as an indicator of a disguised sale, the additional rules are likely to dramatically impair the ability of partnerships to utilize debt allocation structures to attract investors. Tax advisers must react quickly to ensure their clients’ partnership structures are compliant with the new rules.

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. Background on Sections 707 and 752
  2. Overview of new Section 752 regulations
    1. “Bottom dollar” guarantees and similar arrangements
    2. Proposed regulations’ anti-abuse rule
    3. Effective date/transitional rules
  3. Overview of new Section 707 regulations
    1. Treatment of all liabilities as nonrecourse
    2. Ancillary amendments (step-into-shoes rules, capex amendments, de minimis exception to qualified liability taint, etc.)
    3. Effective date/transitional rules
  4. Practical impact of new rules
    1. Impact on common business transactions such as “leveraged partnerships” and “asset drop-down transactions”
    2. Alternative planning techniques

Benefits

This panel will review these and other key issues:

  • Distinguishing recourse from nonrecourse partnership debt
  • The impact of the new regulations on common business transactions, such as leveraged partnerships and asset “drop-down” transactions
  • What tax advisers must do now to prepare partnership clients for the new regulations

Faculty

Gianou, Nickolas
Nickolas Gianou

Skadden Arps Slate Meagher & Flom

Mr. Gianou represents clients on a wide range of tax matters, including partnership transactions, public and private...  |  Read More

Krause, Brian
Brian Krause

Partner
Skadden Arps Slate Meagher & Flom

Mr. Krause represents clients on a broad range of U.S. and international tax matters, with particular emphasis on...  |  Read More

Other Formats
— Anytime, Anywhere

CPE On-Demand

See NASBA details.

$182

DVD

10 business days after event

$147 + $9.45 S&H