Tax Counsel's Guide to Partnership Disguised Sales Rules: Structuring Transactions to Avoid Taxable Events

Navigating Section 707 to Uphold Classification of Partners' Contributions and Distributions

Recording of a 90-minute CLE/CPE webinar with Q&A


Conducted on Wednesday, August 17, 2016

Recorded event now available

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Program Materials

This CLE/CPE webinar will provide tax counsel and advisers with a thorough, practical guide to the disguised sale rules for partnerships since the Fourth Circuit’s decision in Route 231 LLC v. Commissioner. The panel will discuss the facts and circumstances tests listed in the Treasury Regulations, detail the significant changes to the disguised sale rules in proposed regulations, and offer useful guidance in drafting transfer documents to withstand IRS scrutiny.

Description

The disguised sale provisions of Treas. Reg. 1.707-3 are a notable exception to the general rule that contribution of property in exchange for a partnership interest is a non-recognition event. Transactions falling under those listed in the regulation are treated as a sale of property by the partnership to the transferring partner, creating a taxable event requiring gain recognition. This is an area of focus for the IRS, and the Service won a notable victory in the recent Fourth Circuit holding in Route 231 LLC v. Commissioner.

The Service’s successful position in Route 231 is that tax credits are property, and that allocation of those credits other than pro rata represent a disguised sale. Tax counsel must recognize that Section 707 and its regulations put the burden of proof on the partnership to defend a transaction against a disguised sale challenge.

Proposed regulations create still more challenges to tax advisers and counsel due to fundamental changes in measuring risk of loss in transactions involving recourse debt, as well as substantial restrictions in the allocation of nonrecourse debt to partners in property transactions. Tax counsel must be aware of the risks in new and existing transactions between partnerships and their partners.

Listen as our experienced panel provides a thorough overview of the disguised sale rules, offering practical guidance to structuring transactions to avoid reclassification of transactions as disguised sales.

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Outline

  1. Current status of disguised sale regulations
  2. Structuring considerations to avoid disguised sale reclassification
  3. Route 231 holding and the IRS approach to property
  4. Changes to at-risk measurement in proposed regulations

Benefits

The panel will discuss these and other important issues:

  • The IRS approach to what constitutes “property” in partnership transactions
  • What the proposed regulations change about the measurement of “at risk” amounts in allocating recourse debt in partnership-partner transactions
  • Transactions that are most likely to trigger disguised sale and anti-abuse rules—and result in taxable events

Faculty

Mandarino, Joseph
Joseph C. Mandarino

Partner
Smith Gambrell & Russell

Mr. Mandarino's practice focuses on corporate, tax and finance law. He is involved with a wide variety of...  |  Read More

Wagner, Belan
Belan K. Wagner

Managing Partner
Wagner Kirkman Blaine Klomparens & Youmans

Mr. Wagner has over 35 years of in-depth experience in business, taxation, tax planning and controversy resolution,...  |  Read More

William M. (Trey) Gerhardt, III, J.D., LL.M
William M. (Trey) Gerhardt, III, J.D., LL.M

Tax Consultant
RSM US

Mr. Gerhardt provides tax consulting and advisory services that allow businesses to improve performance and enable...  |  Read More

Other Formats
— Anytime, Anywhere

Strafford will process CLE credit for one person on each recording. All formats include program handouts. To find out which recorded format will provide the best CLE option, select your state:

CLE On-Demand Video

$297

Download

CPE Not Available

$297