Dissecting the regulations on partnership disguised sales

Article Abstract:

IRC section 707 rules governing disguised sales within partnerships are very complex and fail to adequately define liabilities. However, the regulations do provide safe harbor and presumption guidelines as well as defining qualified liabilities. Qualified liabilities are secured liabilities that were incurred more than two years prior to the decision or actual transfer of property and that have encumbered the property throughout the two-year period. Partnerships should make sure all distributions made within two years of property contributions fall under a safe harbor.

Real property exchanges

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The section 704(c)(1)(B) proposed regulations

Article Abstract:

The partnership anti-abuse regulations contain extensive restrictions and requirements on contributions to and distributions from partnerships, and IRC section 704(c)(1)(B) and its regulations address gain and loss recognition on property distributed within five years of being contributed to the partnership. The comprehensive proposed regulations contain rules on basis adjustment, character, fair market value, gain, five-year period determination and exceptions as well as anti-abuse provisions. The text of the statute is discussed in detail.

United States, Recognition of gain or loss (Taxation), Recognized gain or loss (Taxation)

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Allocating partnership liabilities

Article Abstract:

The Final Regulations for IRC section 752 provide guidance for the allocation of liabilities and recognition of gain for individual partners in a partnership agreement. Increases in allocated liability are treated as contributions to the partnership while reductions are considered money distributions to the partner for tax purposes. The regulations do not define liabilities, but they do provide rules for specific types of liabilities or liability situations.

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