IRS Publishes New Regulations on the Disguised Sale Rules and the Allocation of Partnership Liabilities
Last week, the IRS and Treasury Department released final, temporary and proposed regulations regarding the partnership “disguised sale” rules under section 707 of the Internal Revenue Code (the “Code”) and the partnership debt allocation rules under section 752 of the Code. The new rules are designed to ensure that a partner’s allocable share of partnership debt accurately reflects the partner’s economic risk of loss with respect to such debt. Most notably, the temporary regulations seek to limit the application of the exception to the disguised sale rules for debt-financed distributions. In addition, the temporary regulations provide that, subject to limited exceptions, bottom-dollar guarantees will no longer cause partnership obligations to be allocated to the guarantor partner, thereby reducing the amount of cash that may be distributed or deemed distributed to a contributing partner on a tax-deferred basis.