IRS Reexamines Partnership ‘Disguised Sale’ Rules

Some elements of controversial rules on the treatment of partnership liabilities, withdrawn last summer, might be coming back.

The Internal Revenue Service and the Treasury Department are taking a fresh look at 2016 temporary regulations that would have limited partners’ ability to boost their investment in a partnership by contributing debt, without setting off a “disguised sale” to the partnership, which is a taxable transaction. The IRS withdrew the rules in June 2018.

The guidance pertains to the allocation of partnership liabilities under tax code Section 752 and disguised sales under Section 707, Holly Porter, IRS associate chief ...