Guidance on Partnership Liabilities, Disguised Sales Likely to Be Separated

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Oct. 21 —  A partnership guidance project addressing proposed rules on disguised partnership sales and the tax treatment of partnership liabilities is likely to be divided into two parts, with rulemakers separating the tax code Section 707 part on disguised sales from the more controversial treatment of partnership liabilities under Section 752, a Treasury Department official said.

The proposed rules (REG-119305-11) issued Jan. 29 have drawn criticism that they would fundamentally change the way economic risk of loss is determined for partnerships under Subchapter K (20 DTR G-1, 1/30/14).

Craig A. Gerson, an attorney-adviser in Treasury's Office of Tax Legislative Counsel, said it is “a strong possibility” that the Section 707 portion will come out first, as that part is simpler and “lends itself to more rapid movement than Section 752.”