U.S. Treasury Department Issues Second Report On Identifying And Reducing Tax Regulatory Burdens: Repeal Of Section 2704 Regulations And Revisions Pending To The Regulations Issued On Partnership Debt

By: Jerald David August

As recently set forth in a post to K&F, LLP Business and International Tax Developments, in Executive Order 13789, President Trump directed the Treasury Department to undertake a detailed review of certain tax regulations projects that were either in proposed or final form on or after January 1, 2016 that imposed financial burdens on U.S. taxpayers, overly complicate the Federal tax laws, or exceed the statutory authority of the IRS in issuing regulations and report back to the President on its recommendations.

Shortly after President Trump took the oath of office as President, on April 21, 2017, President Trump issued Executive Order 13789, a directive intended to reduce tax regulatory burdens on the IRS and Treasury. The order instructed the Secretary of the Treasury to review all “significant tax regulations” issued on or after January 1, 2016, by the predecessor administration, and submit two reports, followed promptly by taking concrete action to alleviate the burdens of regulations that meet criteria outlined in the order. Specifically, the President directed the Secretary, in consultation with the Administrator of the Office of Information and Regulatory Affairs, to submit a 60-day interim report (which it in fact complied with) in identifying regulations that (i) impose an undue financial burden on U.S. taxpayers; (ii) add undue complexity to the Federal tax laws; or (iii) exceed the statutory authority of the Internal Revenue Service (IRS). The order further instructs the Secretary to submit a final report to the President by September 18, 2017, recommending “specific actions to mitigate the burden imposed by regulations identified in the interim report.”[1]

The Target of the Executive Order Was the Deluge of Regulations Issued During the Last Year of the Obama Administration

From January 1, 2016, through April 21, 2017, Treasury and the IRS issued 105 temporary, proposed, and final regulations. One set of regulations, under Section 385, the Office of Management and Budget designated as significant pursuant to Executive Order 12866. Executive Order 13789 provides, however, that in determining whether a regulation is significant for the purpose of this review, past determinations made pursuant to Executive Order 12866 were not to be considered as controlling.

Fifty-three of the 105 regulations issued during the relevant review period are minor or technical in nature and generated minimal public comment. To ensure a comprehensive review, Treasury treated the remaining 52 regulations as potentially significant and reexamined all of them for the purpose of formulating its interim report. See https://www.treasury.gov/resource-center/tax-policy/Pages/Executive-Orders.aspx. Treasury proceeded to identify regulations that meet the criteria of President Trump’s order and qualify as significant per Executive Order 13789.

Within 150 days of the date of the order — by September 18, 2017,  — the Secretary of the Treasury is required to submit a report to the President that contains the Secretary’s “plan of attack” for each regulation identified in the interim report. It is unclear when that report would be made publicly available.

Treasury Responds In First Report Issued June 22, 2017.  In its First Report, the Treasury identified eight proposed, temporary or final regulations for withdrawal, revocation or modification. There are also indications that the Treasury will further analyze all recently issued significant regulations such as under Section 871(m) which pertains to the payment of U.S. source dividends and the Foreign Account Tax Compliance Act (FACTA).[2] Based on that reexamination, Treasury has identified regulations that meet the criteria of the President’s order and qualify as significant in view of the Presidential priorities for tax regulation outlined in Executive Order 13789.

Notice 2017-38, 2017-30 I.R. B. 147

Treasury concluded, in Notice 2017-38, 2017-30 I.R.B. 147, that eight regulations meet at least one of the first two criteria specified by Section 2 of Executive Order 13789. Consistent with the order, Treasury intends to propose reforms—potentially ranging from streamlining problematic rule provisions to full repeal—to mitigate the burdens of these regulations in a final report submitted to the President.

1. Proposed Regulations under Section 103 on Definition of Political Subdivision (REG-129067-15; 81 F.R. 8870)

These proposed regulations define a “political subdivision” of a State (e.g., a city or county) that is eligible to issue tax-exempt bonds for governmental purposes under Section 103 of the Internal Revenue Code. The proposed regulations require a political subdivision to possess three attributes: (i) sovereign powers; (ii) a governmental purpose; and (iii) governmental control. Commenters stated that the longstanding “sovereign powers” standard was settled law and had been endorsed by Congress, and additional limitations were unnecessary. There had been criticism of these proposed regulations in that they would disrupt the status of numerous existing entities and that it would be burdensome and costly for issuers to revise their organizational structures to meet the new requirements of the proposed regulations.

2. Temporary Regulations under Section 337(d) on Certain Transfers of Property to Regulated Investment Companies (RICs) and Real Estate Investment Trusts (REITs) (T.D. 9770; 81 F.R. 36793)

The temporary regulations amend existing rules on transfers of property by C corporations to REITs and RICs generally. In addition, the regulations provide additional guidance relating to certain newly-enacted provisions of the Protecting Americans from Tax Hikes Act of 2015, intended to prevent certain spin-off transactions involving transfers of property by C corporations to REITs from qualifying for non-recognition treatment.

3. Final Regulations under Section 7602 on the Participation of a Person per Section 6103(n) in Issuing Summons (T.D. 9778; 81 F.R. 45409)

These final regulations provide that persons described in Section 6103(n) and Treas. Reg. § 301.6103(n)-1(a) with whom the IRS contracts for services— such as outside economists, engineers, consultants, or attorneys—may receive books, papers, records, or other data summoned by the IRS and, in the presence and under the guidance of an IRS officer or employee, participate fully in the interview of a person who the IRS has summoned as a witness to provide testimony under oath. Treasury will review these regulations as they concern the outside attorneys under contract with the IRS to participate in the taking of compulsory testimony under oath.

4. Proposed Regulations under Section 2704 on Restrictions on Liquidation of an Interest for Estate, Gift and Generation-Skipping Transfer Taxes (REG-163113-02; 81 F.R. 51413)

Section 2704(b) requires that certain non-commercial restrictions on the ability to dispose of or liquidate family-controlled entities should be disregarded in determining the fair market value of an interest in that entity for estate and gift tax purposes. Concern had been raised by professional commentators and bar groups that the proposed regulations would eliminate or restrict common discounts, such as minority discounts and discounts for lack of marketability, which would result in increased valuations and transfer tax liability that would increase financial burdens.

5. Temporary Regulations under Section 752 on Liabilities Recognized as Recourse Partnership Liabilities (T.D. 9788; 81 F.R. 69282).

This set of somewhat controversial temporary regulations generally provide: (i) rules for how liabilities are allocated under Section 752 solely for purposes of disguised sales under Section 707 of the Internal Revenue Code; and (ii) rules for determining whether “bottom-dollar payment obligations” provide the necessary “economic risk of loss” to be taken into account as a recourse liability. Commenters stated that the first rule was novel and would unduly limit the amount of partners’ bases in their partnership interests for disguised sale purposes, which would negatively impact ordinary partnership transactions. Commenters were further concerned that the bottom-dollar payment obligation rules would prevent many business transactions compared to the prior regulations and suggested their removal or the development of more permissive rules.  Converting recourse debt to non-recourse debt for applying the disguised sales rules was permitting draconian in its application from prior law and ignored economic risk of loss principles.

6. Final and Temporary Regulations Defining Debt Versus Equity Under Section 385 On the Issuance of Interests in Corporations (T.D. 9790; 81 F.R. 72858)

The final and temporary regulations under Section 385 addressed the classification of related-party debt as debt or equity for federal tax purposes. The regulations are primarily comprised of (i) rules establishing minimum documentation requirements that ordinarily must be satisfied in order for purported debt among related parties to be treated as debt for federal tax purposes; and (ii) transaction rules that treat as stock certain debt instruments that are issued by a corporation to a controlling shareholder in a distribution or in another related-party transaction that achieves an economically similar result. The rules were viewed by many as overly burdensome and costly.

7. Final Regulations under Section 987 on Income and Currency Gain or Loss With Respect to a Section 987 Qualified Business Unit (T.D. 9794; 81 F.R. 88806)

These final regulations issued with respect to Section 987 provide rules for (i) translating income from branch operations conducted in a currency different from the branch owner’s functional currency into the owner’s functional currency, (ii) calculating foreign currency gain or loss with respect to the branch’s financial assets and liabilities, and (iii) requiring recognition of foreign currency gain or loss when the branch makes a transfer of any property to its owner. As with other Obama Administration regulations during the relevant period under review, the final regulations under Section 987 were perceived to impose an undue financial burden on taxpayers because it disregarded losses calculated by the taxpayer for years prior to the transition but not previously recognized and otherwise imposes undue costs and administrative burdens on subject taxpayers.

8. Final Regulations under Section 367 on the Treatment of Certain Transfers of Property to Foreign Corporations (T.D. 9803; 81 F.R. 91012)

Section 367 requires income recognition with respect to immediate or future transfers of property (tangible and intangible) to foreign corporations, subject to certain exceptions. The newly minted final regulations eliminated the ability of taxpayers under prior regulations to transfer foreign goodwill and going concern value to a foreign corporation without immediate or future U.S. income tax. Some comments were filed that the final regulations would increase burdens by taxing transactions that were previously exempt, noting in particular that the legislative history to Section 367 contemplated an exception for outbound transfers of foreign goodwill and going concern value.

Second Report Issued on October 2, 2017, by The U.S. Treasury Department

After carefully reviewing with the IRS Office of Chief Counsel the eight regulations projects noticed in the June 22 First Report (and Notice 2017-38, supra), as well as 140 or more comments from the public, the Treasury announced a set of specific actions.[3] Specifically, the Treasury recommends that two sets of proposed regulations be withdrawn in their entirety, three temporary or final regulations be revoked in substantial part, and the remaining three sets of regulations all be substantially revised.

1. Recommendation to Withdraw Proposed Regulations under Section 2704 Pertaining to Restrictions on Liquidation of an Interest for Estate, Gift and Generation-Skipping Transfer Taxes. (REG-163113-02).

Section 2704(b), in limited instances, disregards, for gift and transfer tax valuation purposes, restrictions on the ability to liquidate a family-controlled entity in determining the fair market value of the “applicable” interest being valued.  Under Section 2704(a), lapses of voting or liquidation rights are treated as if they were transfers for gift and estate tax purposes.

The proposed regulations, which became quite controversial in their scope and effect, would have narrowed longstanding exceptions to the application of Section 2704(b), most notable the state law default rules, and would have greatly expanded the class of restrictions that would be required to be disregarded under Section 2704. Moreover, the proposed regulations required an equity interest in a family-controlled entity to be valued as if the disregarded restrictions did not exist, either in the entity’s governing documents or under state law. No exceptions would have been allowed for interests in active or operating businesses which many tax professionals seemed to go way too far.  Some warned that the valuation requirements under the proposed regulations were unclear and of uncertain scope and might further impact on traditional valuation discounts.  How could you value an entity as if there were no restrictions on withdrawal or liquidation which in fact existed in the entity’s governing documents. Some tax practitioners thought that the Section 2704 proposed regulations essentially re-wrote the statute which clearly exceeded the rule-making authority of the Treasury.

The Treasury and IRS stated that the rules set forth in the proposed regulations to Section 2704 to address the problem of artificial valuation discounts are “unworkable” and lacking reality in terms of the governing legal restrictions and limitation on the entity imposed under state law. To ignore those restrictions and limitations for valuation purposes is unsupportable, would impose excessive compliance burdens on taxpayers and seem to go well beyond proper policy objections.

Accordingly, the Second Report announced that the Treasury and the IRS plan to publish a withdrawal of the proposed regulations shortly in the Federal Register.

2. Recommendation to Withdraw Proposed Regulations under Section 103 on the Definition of Political Subdivision. (REG-129067).

Section 103 excludes from gross income interest received on state or local bonds, including obligations of political subdivisions. Proposed regulations would have required a “political subdivision” to not only have the attribute of significant sovereign power, but also to meet enhanced standards evidencing governmental purpose and governmental control. There were comments received in response to the proposed regulations that these additional factors go beyond Congress’ intent and purpose in enacting Section 103. Moreover, the proposed regulations would, if issued in favor form, would be burdensome to comply with which in turn would result in additional costs.  While some enhanced standards for qualifying as a political subdivision may be supportable, the proposed regulations, in their present form are unsupportable and the Treasury and the IRS will withdraw them in their entirety shortly in the Federal Registrar. A comment was made in the Second Report that more “targeted guidance” would be undertaken in the future on this issue.

3. Withdrawal of Regulation in Part on Final Regulations under Section 7602 on the Participation of a Person Described in Section 6103(n) in a Summons Interview (T.D. 9778).

Final regulations under Section 6103(n) provide that the IRS may use private contractors to assist the IRS in auditing taxpayers. Under the regulations, the Service was authorized to contract with persons who are not government employees, and those private contractors may “participate fully” in the Service’s interview of taxpayers or other witnesses summoned to provide testimony during an audit. The regulations allowed private contractors to receive and review records produced in response to a summons, to be present during interviews of witnesses, and to question witnesses under oath, under the guidance of an Internal Revenue Service officer or employee. The regulations were issued in temporary form in 2014 and finalized in 2016.

Although this regulation project did not at first gather much attention, it is clear that by now such is clearly not the case. It is most surprising that it took two years or so and President Trump’s directive to call this project into question. In particular, the IRS’ ability to hire outside attorneys and have them question witnesses during a summons interview clearly blurs the line between the executive branch and the private sector. Indeed, after the Service hired an outside law firm to assist with the audit of a corporate taxpayer under the temporary regulations, a federal judge found that the “idea that the IRS can ‘farm out’ legal assistance to a private law firm is by no means established by prior practice” and noted it needed special scrutiny by Congress. Such involvement by a private law firm in pursuing the rights of the government in a tax audit was found to be disturbing.  See U.S. v. Microsoft Corp., 154 F.Supp.3d 1134, 1143 (W.D. Wash. 2015).

Subsequently, the Senate Finance Committee approved legislation to prohibit the Internal Revenue Service from using any private contractors for any purpose in summons proceedings. This legislation has not be enacted.

The Treasury and the Service want to amend the regulations to narrow their scope by prohibiting the IRS from enlisting outside attorneys to participate in an examination, including a summons interview. The idea being circulated now is that outside attorneys would not be permitted to question witnesses on behalf of the IRS and further would not be permitted to play a “behind-the-scenes” role, such as by reviewing summon records or consulting on IRS legal strategy. The hiring of private counsel cannot be used to permit such counsel to have control over the audit of a taxpayer.

Therefore, the Treasury announced in its Second Report that consideration is being given to allow outside subject-matter experts to participate in summons proceedings. In other words, in certain highly complex examinations, effective tax administration may require the specialized knowledge of an economist, an engineer, a foreign lawyer who is a specialist in foreign law, or other subject-matter experts. Outside experts should continue to be permitted to assist the IRS by reviewing summoned materials and where necessary, pose questions to witnesses under the guidance and in the presence of IRS employees. But such involvement must be carefully limited in the regulations and in practice.

4. Withdrawal of Regulation in Part on the Treatment of Partnership Liabilities under Section 707 and Section 752. (T.D. 9787 and 9788).

On October 5, 2016, the Internal Revenue Service and the Treasury issued Final and Temporary Regulations (T.D. 9788) pertaining to how liabilities are to be allocated and treated for purposes of applying the disguised sales rules under Section 707 and when certain obligations will be as a recourse liability under Section 752. Shortly thereafter, new proposed regulations (REG-122855-15) withdrew a portion of the recent rule-making to the extent not adopted in the final regulations and contain new proposed regulations on: (i) whether certain obligations to restore a deficit balance in a partner’s capital account are to be regarded (versus disregarded) for purposes of Section 704; and (ii) when partnership liabilities are to be treated as recourse liabilities under Section 752.

The Preamble to the new Final and Temporary Regulations note that based on a comment it had received on the 2014 Proposed Regulations, reconsideration was given to Treas. Reg. §1.707-5(a)(2) of the 2014 Proposed Regulations in determining a partner’s share of partnership liabilities under section 707. The Temporary Regulations (the Section 752 Temporary Regulations) require a partner to generally apply the same percentage used to determine the partner’s share of excess nonrecourse liabilities under Treas. Reg. § 1.752-3(a)(3) in determining the partner’s share of partnership liabilities for disguised sale purposes.  This would convert what otherwise would have been a non-taxable contribution of encumbered property by a partner with a recourse debt to a partnership where such partner remains liable on the same indebtedness. That’s a disguised sale?

The new Section 752 Temporary Regulations also provide guidance on the treatment of “bottom dollar payment obligations”, a subject which has long been viewed as problematic to the Service on leveraged partnership transactions designed to withdraw funds from a partnership as a tax-free recovery of basis. In T.D. 9787 the Section 752 Final Regulations addressed the allocation of a partnership’s excess nonrecourse liabilities. [4]

The Second Report acknowledges that the disguised sale rule regulation’s treatment of recourse as non-recourse debt did not receive sufficient comment and evaluation of its impact. While it could be said with some anecdotal experience by tax commentators and the Service that the obligation will, in fact, be paid by the partnership, there are rules in Section 752(b) and Section 731 that take the repayment of the debt into account at the contributing partner level. To transform the disguised sale regulations into an automatic gain on contribution rule like Section 357(c) is without statutory authority. [5] Therefore, further study will be given to contributions of encumbered property by a partner to a partnership to determine whether the temporary regulations should be revoked and the prior regulations reinstated. It must be noted that the temporary regulations under Section 707 are still in effect.

On the other hand, the Treasury and Service report that they are in agreement with keeping in place the second set of regulations relating to bottom-dollar guarantees.  The perception is that the liability allocation rules permit sophisticated taxpayers to create basis artificially in order to shelter or defer income tax liability.  The bottom-dollar guarantees permitted taxpayers to obtain basis without meaning economic risk. Therefore, the temporary regulations on bottom-dollar guarantees are needed to prevent abuses and do not meaningfully increase regulatory burdens for the taxpayers affected. While further study will be given to the technical issues and comments submitted involving liabilities and the allocation of liabilities of partners in general, the Treasury does not anticipate that substantial changes will be made to the temporary regulations on this point. 

5. Withdrawal in Part on Final and Temporary Regulations under Section 385 on the Treatment of Certain Interests in Corporations as Stock or Indebtedness (T.D. 9790; 81 F.R. 72858).

These final and temporary regulations address the characterization of related-party debt as debt or equity for U.S. federal income tax purposes. The regulations received much comment and criticism including their excessive burden and cost on compliance. The regulations are primarily comprised of rules establishing minimum documentation requirements that must be met in order for ostensible debt obligations among related parties to be treated as debt (the “documentation regulations”), and rules that treat as stock certain debt issued by a corporation to a controlling shareholder in a distribution or in another related-party transaction that achieves an economically similar result (the “distribution regulations”).  The documentation rules generally or principally apply to domestic issuers and are concerned with establishing minimum standards of practice so that the tax character of an interest may be objectively evaluated. The distribution regulations generally or principally affect interests issued to related party non-U.S. holders and are rules that attempt to reduce abusive efforts to engage in earnings-stripping, including debt involved in inversions and foreign acquisitions of U.S. companies.

The Second Report reveals that the Treasury and IRS currently plan on taking different approaches to the documentation rules and the distributions rules.  First, there will be a potential revocation of the documentation regulations.  Indeed, some requirements would depart substantially from current practice and would have forced corporations to build expensive new systems to satisfy the regulations.  Indeed, shortly after issuing its June 22 (First) Report, Treasury and the IRS announced in Notice 2017-36 that the application of the documentation regulations would be deferred until 2019. After further review, consideration is being given to revoke the documentation regulations as issued and their being replaced with a substantially simplified and streamlined version that would have a prospective effective date.

Consideration is being given, in particular, to modifying significantly the requirement, contained in the documentation regulations, of a reasonable expectation of ability to pay indebtedness.  Further, the treatment of ordinary trade payables will be reexamined.

The distribution regulations the Treasury announced it recommend be retained pending enactment of tax reform. These regulations are needed to level the playing field for U.S. businesses so they may freely and fairly compete in a global economy and implement tax rules to reduce the distortion of capital and ownership decisions through earnings stripping and further reduce incentives for inversions and foreign takeovers. Still, there is a perceived need for tax reform which would eliminate the need for distribution regulations.  The Treasury stated it would not be prudent to withdraw the distribution regulations without tax reform.

6. Recommendation to Substantially Revise the Final Regulations under Section 367 on the Treatment of Certain Transfers of Property to Foreign Corporations (T.D. 9803; 81 F.R. 91012)

The regulations eliminated the ability of taxpayers to transfer foreign goodwill and going-concern value to a foreign corporation without immediate or future U.S. income tax even where the transfers are part of the transfer of the active conduct of a trade or business outside of the U.S.  Compare, of course, Section 367(d) where there is a taxable transfer of intangibles to a foreign corporation. 

The Second Report concludes that an exception to the current regulations may be justified based on both the organization and language set forth in the statute and its legislative history. In response to the criticism the final regulations received on the removal of the foreign goodwill and going-concern rule, the Office for Tax Policy and IRS are actively working to develop a proposal to expand the scope of the active trade or business exception to include relief for outbound transfers of foreign goodwill and going-concern value attributable to a foreign branch under circumstances with limited potential for abuse and administrative problems, including valuation. Accordingly, the Treasury and IRS currently expect to propose regulations providing for such an exception in the near future.

7. Recommendation to Revise the Temporary Regulations under Section 337(d) on Certain Transfers of Property to Regulated Investment Companies (RICs) and Real Estate Investment Trusts (REITs) (T.D. 9770; 81 F.R. 36793)

The temporary regulations amended existing rules on transfers of property by C corporations to REITs and RICs including rules enacted under the Protecting Americans from Tax Hikes Act of 2015 (the “PATH Act”). The PATH Act’s provisions were intended to prevent certain spin-off transactions involving transfers of property by C corporations to REITs from qualifying for non-recognition treatment.  The regulations were criticized such as the REIT spin-off rules which could result in excessive amounts of gain in certain situations, particularly where a large corporation acquires a small corporation that engaged in a Section 355 spin-off and the large corporation subsequently makes a REIT election. Consideration is being given to revising the regulations to limit the potential taxable gain recognized in certain spin-off situations. Other technical changes are being considered to more closely conform to the intent of Congress.

8. Recommendation to Revise the Final Regulations under Section 987 on Income and Currency Gain or Loss With Respect to a Section 987 Qualified Business Unit (T.D. 9794; 81 F.R. 88806)

The final regulations provide rules for translating income from branch operations conducted in a currency other than the branch owner’s functional currency into the owner’s functional currency, calculating foreign currency gain or loss with respect to the branch’s financial assets and liabilities, and recognizing such foreign currency gain or loss when the branch makes certain transfers of any property to its owner.

The regulations were criticized by commentators in that the transition rule in the financial regulations impose an undue financial burden by disregarding losses for years prior to the transition but not previously recognized.  Various technical issues were exposed as problematic.

The Second Report states that the regulations are indeed difficult to apply for many taxpayers and guidance is expected to be issued to allow taxpayers to elect to defer the application of Treas. Regs §§ 1.987-1 through -10 until at least 2019, depending on the beginning date of the taxpayer’s taxable year. Modifications to the final regulations are to be proposed to allow taxpayers to elect a simplified method of calculating Section 987 gain and loss and translating Section 987 income and loss, subject to certain limitations on the timing of recognition of Section 987 loss.


[1] Executive Order 13789 § 2(a) (2017).

[2] See Executive Order 12866 § 3(f) (1993) ( “significant regulatory action” includes, inter alia, “any regulatory action that is likely to result in a rule that may ... [r]aise novel ... policy issues arising out of ... the President’s priorities”). To assess “undue financial burden,” Treasury considered the degree to which the regulation at issue imposed compliance costs or resulted in tax liabilities that exceed the minimum required to achieve the relevant statutory objectives. To assess “undue complexity,” Treasury considered whether the regulation at issue imposed new substantive, computational, or other requirements not required to achieve the relevant statutory objectives, or introduced rules that added uncertainty for taxpayers.

[3] Note that action was already taken by the IRS in Notice 2017-36, delaying the documentation recommendations under §385 regulations.

[4] The rule-making concluding that for disguised sale purposes only, it is appropriate for partners to determine their share of any partnership liability, whether recourse or nonrecourse under §752, in the manner in which excess nonrecourse liabilities are allocated under Treas. Reg. § 1.752-3(a)(3). The rationale for ignoring the recourse status of the debt, is that in “most cases” a partnership will satisfy its liabilities with partnership profits, the partnership’s assets do not become worthless, and the payment obligations of partners or related persons are not called upon.  The new regulations require this treatment of recourse debt to be viewed as non-recourse debt to apply: (i) where a partner’s liability is assumed by a partnership in connection with a transfer of property to the partnership or by a partner in connection with a transfer of property by the partnership to the partner; (ii) where a partnership takes property subject to a liability in connection with a transfer of property to the partnership or a partner takes property subject to a liability in connection with a transfer of property by the partnership to the partner; or (iii) where a liability is incurred by the partnership to make a distribution to a partner under the debt-financed distribution exception in  Treas. Reg. § 1.707-5(b). There was an exception provided that a partner’s share of a partnership liability for disguised sale purposes should not include any portion of the liability for which another partner bears the economic risk of loss.

[5] See also Lessinger v. Comm’r, (citation). 


"Disclaimer of Use and Reliance: The information contained in this blog is intended solely for informational purposes and the benefit of the readers of this blog. Accordingly, the information does not constitute the rendering of legal advice and may not be relied upon by the reader in addressing or otherwise taking a position on one or more specific tax issues or related legal matter for his or her own benefit or the for the benefit of a client or other person.” ©Jerald David August for Kostelanetz & Fink, LLP”