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Proposed Regulations on Debt Allocation and Disguised Sales

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DESCRIPTION

On January 29, 2014, the IRS and Treasury issued proposed regulations (REG-119305-11) under section 752, addressing partnership allocations of recourse and nonrecourse liabilities, and under section 707, addressing disguised sales of property to or by a partnership. These rules, if finalized, would affect future transactions of taxpayers structured in partnerships across all industries.

A partner’s ability to receive tax-free, cash distributions and deduct partnership losses turns upon the partner’s share of recourse and nonrecourse liabilities, as allocated under the rules of section 752. The Proposed Regulations relating to allocations of recourse and nonrecourse liabilities represent a fundamental change to the current framework of rules governing the allocation of basis from recourse and nonrecourse debt. Significantly, the new rules relating to recourse liabilities modify the bedrock principle of economic risk of loss that determines when, and to what extent, a partner receives an allocation of basis from recourse debt, and impose on all partners, other than individuals and decedents’ estates, a dollar-for-dollar net worth requirement. The Proposed Regulations also restrict the flexibility currently provided in allocating nonrecourse liabilities.

In addition to the changes to the recourse and nonrecourse debt allocation rules, the Proposed Regulations would also make numerous targeted amendments to the disguised sale rules under section 707. Many of these changes are aimed at ambiguities that have long vexed practitioners.

During this recorded webinar, Blumenreich and Katz will cover:
• Why debt allocations are important. 
• An overview of the existing recourse and nonrecourse debt rules. 
• Significant changes to the recourse debt rules, including six new requirements for payment obligations to be recognized (prohibition against Bottom Dollar Guarantees), new net worth requirement and new anti-abuse rules. 
• Significant changes to the nonrecourse debt rules, including the elimination of flexibility under the Tier III allocation rules. 
• Transition Relief provisions.
• Changes to the Disguised Sale rules, including the Debt Financed Distribution, Preformation Expenditure, Qualified Liability, Anticipated Reductions, Tiered Partnerships, Asset Over Mergers, Disguised Sale from Partnership to Partner. 

Educational Objectives:
• Analyze the proposed changes to the recourse and nonrecourse debt rules and determine how they may impact your clients;
• Identify the six new requirements for payment obligations under the recourse liabilities rules that are to be recognized under the Proposed Treasury Regulations; and
• Determine how the proposed changes to the disguised sale rules may impact your clients.

SPEAKERS

RICHARD BLUMENREICH, KPMG LLP

Richard Blumenreich, J.D., LLM, is a Principal in KPMG LLP’s Washington National Tax Passthroughs practice. Prior to joining KPMG, Rich was with the Internal Revenue Service’s Office of Chief Counsel (1985-1993) where he was an Assistant Branch Chief in the Office of the Assistant Chief Counsel (Passthroughs & Special Industries) and an Attorney-Advisor in the Legislation and Regulations Division.  While at the IRS, he worked extensively on regulations and rulings regarding the taxation of partnerships, subchapter S corporations, depreciation, tax credits, and trusts and estates. Rich is a member of the Committee on Government Submissions of the American Bar Association (Tax Section) and is a former Chairman of the Capital Recovery and Leasing Committee of the American Bar Association (Tax Section). Rich has written articles for various publications and has spoken at various conferences.


BEVERLY KATZ, KPMG LLP

Beverly Katz, J.D., is a Director in KPMG LLP’s Washington National Tax Passthroughs practice.  Prior to joining KPMG, she was with the Internal Revenue Service’s Office of Chief Counsel for 15 years.  Most recently, Bev spent six years as Special Counsel to the Associate Chief Counsel (Passthroughs & Special Industries).  While at the IRS, she worked extensively on regulations and other guidance regarding partnership tax issues.   Prior to joining the Office of Chief Counsel, Bev worked at the Department of Justice, Tax Division, litigating tax matters across the country. Bev graduated cum laude from the University of Miami, School of Law and magna cum laude from the University of Florida, School of Accountancy.