Current Developments in Partners and Partnerships

By Hughlene A. Burton, Ph.D., CPA


EXECUTIVE SUMMARY

  • Treasury issued proposed regulations on how Secs. 704(c) and 737 apply to an assets-over partnership merger.

  • The first Son of Boss court case was decided in Klamath.

  • In Hubert, the Sixth Circuit vacated and remanded the case back to the Tax Court to determine if a deficit restoration obligation might give rise to at-risk basis.

  • Many rulings were issued on TEFRA audits, taxation of partnership income, Sec. 704(b), basis adjustments, and other areas.


During the period of this update (November 1, 2006–October 31, 2007), Treasury and the IRS worked to provide guidance for taxpayers on numerous changes that had been made to subchapter K over the past few years. Treasury issued proposed and final partnership regulations concerning the sale of qualified small business stock by partnerships, how to treat Sec. 704(c) gain in an assets-over merger, and how to treat nonqualified deferred compensation plans. In 2007, the first Son of Boss case was decided, and the IRS issued various rulings that addressed partnership operations and allocations.

Partnership Issues

The Small Business and Work Opportunity Tax Act of 2007, P.L. 110-28 (SBWOTA), was enacted on May 25, 2007. The act has a bigger impact on S corporations than it does on partnerships, but there are two sections that partnerships should be aware of. First, SBWOTA added Sec. 761(f) regarding a husband and wife that own a partnership. If both spouses materially participate in the partnership and they are the only partners in the partnership, they can now elect to treat the partnership as a disregarded entity and file the information on two separate Schedule Cs. The income would still be subject to self-employment tax but the provision would reduce the burden of filing a partnership tax return.

Another provision that affects all taxpayers (including partnerships and their partners as well as tax practitioners) is the expansion of Sec. 6694, under which tax practitioners must use a “more likely than not” standard on undisclosed positions. This is in contrast to the “realistic possibility of success” standard that practitioners previously used. This provision was originally effective for tax returns prepared after May 25, 2007; however, the IRS granted an extension in Notice 2007-54 and the provision is now effective for returns due after December 31, 2007. Under this provision, tax return preparers will be subjected to a higher standard of reporting than taxpayers. In addition, the amount of the Sec. 6694 penalty has been increased. The revisions to Sec. 6694 constitute major changes to practice standards and penalties that have been in place for many years. This new standard could affect a return preparer’s position on special allocations of income or loss, allocations of liabilities, and basis issues for partners and partnerships.

The IRS is proposing changes to Form 1065, U.S. Return of Partnership Income, which partnerships use to file their returns. The Service unveiled these changes in news release IR-2007-138.1 The changes are not expected to be effective until tax years ending December 31, 2008. However, the new forms increase the complexity of compliance by adding questions to existing Schedule B. The changes focus on partnerships that have complex ownership structures. In the future these partnerships must identify entities that directly or indirectly own a 10% or greater interest in the partnership and entities in which the partnership directly or indirectly owns a 10% or greater interest.

TEFRA

In 1982, the Tax Equity and Fiscal Responsibility Act, P.L. 97-248 (TEFRA), was enacted to improve the auditing and adjustment of income items attributable to partnerships. It requires determining the treatment of all partnership items at the partnership level. Two issues that continue to arise under audit are whether an item is a partnership item and thus subject to TEFRA and the correct statute of limitation period for both the partners and the partnership. This year there were several cases that addressed TEFRA’s application.

River City Ranches #1 Ltd. 2 addressed the period for making tax assessments attributable to a partnership item. The IRS determined that a partnership had entered into fraudulent transactions under the guidance of its tax matters partner. In order to complete the audit, the IRS requested that the tax matters partner sign a consent to extend the statute of limitation. The tax matters partner signed the consent and the audit was completed. The other partners filed suit, contending that the statute of limitation had run out before the Federal Partnership Administrative Adjustment (FPAA) letter was issued and therefore they were not subject to the adjustments made under the audit. The court partially agreed with the taxpayers, ruling that the IRS knew or had reason to know that the tax matters partner’s interest in extending the period within which the IRS could issue the FPAA was in conflict with the investor-partners’ interest in not delaying the issuance of the FPAA. Thus, for the first three years under audit, the court concluded that the consent to extend the limitation period was invalid. However, the court ruled that the six-year statute of limitation on assessment was still open for the final three years under audit when the FPAA was issued and that the investor-partners were liable for the changes made to those tax returns.

The question in Goldberg 3 was whether an expense was a TEFRA item. In this case the IRS disallowed every deduction the partnership claimed because it determined the partnership was a sham without any business purpose. The taxpayers originally contested the IRS’s findings but later agreed to a dismissal of the case. In addition to the losses from the partnership, the taxpayers also claimed a deduction for legal, accounting, and consulting fees related to the partnership. The court denied the motion to dismiss the case because it found that the deduction for the legal, accounting, and consulting expenses was not governed by TEFRA but was subject to Sec. 183 or Sec. 212. Because these items were not partnership items or items affected by TEFRA, the court concluded that it retained jurisdiction over the case. In many cases partners pay expenses related to the partnership personally. These items are outside the partnership and thus the partnership audit. Had the partnership paid these expenses in this case, the court would not have had jurisdiction and the case would have been dismissed.

The last issue that the courts addressed this year was whether a partnership was subject to TEFRA. In Nehrlich,4 the taxpayer claimed that the partnership was a small partnership and thus TEFRA did not apply to it. The IRS disagreed. One requirement for a small partnership is that each item of income, loss, gain, or deduction must be allocated to each partner in the same way (the same-share test). Nehrlich’s partnership did not allocate all the items the same way on the partners’ K-1s. Later the allocation that was done differently than the others was found to be in error. However, the court ruled that the partnership was subject to the TEFRA rules because the IRS should look only at the partnership return itself to determine whether the partnership meets the same-share test. Even though the different allocation was a mistake, it was not up to the IRS examiner to figure that out. This case should point out to tax advisers the importance of getting the details of the tax return correct. If the error had been caught and fixed by the return preparer, this partnership would have been a small partnership and not subject to TEFRA.

Partnership Formation

Sec. 721(a) provides that no gain or loss is recognized on the exchange of property for a partnership interest. If Sec. 721 does not apply to the transaction, the partner will have income to report. In Letter Ruling 200734003,5 in order to continue family financial and investment planning, a trust that had two equal beneficiaries contributed all of its assets to a new limited liability company (LLC). Immediately thereafter, the trust terminated by distributing its LLC interests to the beneficiaries.

The IRS held that the contribution of the trust’s assets and liabilities would be disregarded for federal income tax purposes because the LLC would be a disregarded entity. In addition, the assets distributed were not a distribution in satisfaction of a right to receive a distribution in a specific dollar amount or in specific property, nor were they a distribution in satisfaction of a general claim. Thus, neither the trust nor the beneficiaries would realize a gain or loss on the transaction. Finally, the IRS held that the deemed contribution by the beneficiaries of the trust’s assets and liabilities to the LLC would be a nontaxable trans­action under Sec. 721.

Partnership Operations and Income Allocation

Sec. 701 states that a partnership is not subject to tax; rather, the partnership calculates its income or loss and allocates the amount to the partners. Sec. 702 specifies the items a partner must take into account separately. Sec. 703(b) provides that any election affecting the computation of taxable income from a partnership must be made by the partnership. Under Sec. 704(a), the allocation of partnership items is made based on the partnership agreement; however, there are several exceptions to this general allocation rule.

In a unique case,6 a taxpayer claimed a loss from a partnership that operated a business in China. Unfortunately, the building out of which the business operated burned down and all the business records were destroyed. The partnership did nothing to substantiate either the loss it incurred during the year in question or the partner’s basis in the partnership. Even though the court found the taxpayer’s contention that the partnership records were destroyed valid, it pointed out that the taxpayers should have tried to salvage or reconstruct some of the records. The court ruled that without records, the partnership failed to prove its actual losses for the tax year. Therefore, the partner would not be able to take the deduction.

When Is Income Reported?

Sec. 702 requires partners to report in their income their share of the partnership’s taxable income or loss. Under Regs. Sec. 1.702-1(a), each partner is required to take into account his or her share of income or loss, whether or not distributed. In Burke,7 the taxpayer argued that he should not have to report income allocated to him from the partnership that was being held in escrow due to a dispute between him and his partner. Burke contended that his distributive share of this income was indefinite and that the partnership receipts in escrow were frozen and therefore unavailable to him. The Tax Court ruled that the taxpayer could be taxed on his share of the partnership’s profits even though he did not receive them. The court determined that there was nothing conditional or contingent about the receipt of the partnership’s income. This year the First Circuit8 affirmed the Tax Court’s decision, noting that a self-imposed restriction on the receipt of income from a partnership cannot legally defer recognition of that income. Therefore, the taxpayer was required to report his share of the income in the year it was earned by the partnership, even though he had not yet received it.

Sec. 704(b) Allocations

Sec. 704(b) allows a partnership to make special allocations as long as they have substantial economic effect. The current regulations define how a partnership meets the rules for economic effect and for substantiality. This year the IRS issued two pieces of guidance relating to special allocation of credits. First, Rev. Proc. 2007-659 established the necessary requirements for partnerships to meet a safe harbor in allocating wind energy production tax credits under Sec. 45. This was an area on which the IRS had previously refused to rule. The intention is that the safe harbor will simplify the application of Sec. 45 to partners and partnerships that own and produce electricity from qualified wind energy facilities. However, the safe harbor has nine requirements, all of which must be met for the safe harbor to apply. So even though the Service’s intention was simplicity, it may not be easy to meet the safe harbor.

The second guidance is a memorandum from the IRS Chief Counsel’s office, AM 2007-002,10 which applies to partnerships that are being used to market transferable and nontransferable state income tax credits to generate federal income tax losses. In these situations the partnership allocates all the credits to the investors in exchange for a cash contribution. The investors do not receive any material distribution of cashflow and are not allocated any material amounts of partnership income or loss. The investors’ only return is the credits allocated to them. The IRS believes that these state tax credit partnerships are abusive because they do not engage in any substantial business activity except for allocating the credits. The IRS concluded that the investors in this type of transaction are not partners in a partnership and that the transactions therefore should be recast as sales of credits under the substance-over-form doctrine and under the Sec. 701 anti-abuse rules. Any losses claimed by the investors would be disallowed.

Sec. 704(c) Rulings

In Rev. Rul. 2004-43,11 the IRS addressed whether Sec. 704(c)(1)(B) would apply to Sec. 704(c) gain or loss created in an assets-over partnership merger. The result was that Sec. 704(c)(1)(B) applied to newly created Sec. 704(c) gain or loss on property contributed by the transferor partner. However, it did not apply to any reverse Sec. 704(c) gain or loss created from a revaluation of property in the continuing partnership. Likewise, for Sec. 737(b) purposes, net precontribution gain will include the newly created Sec. 704(c) gain or loss from the property contributed by the transferor partnership, but not the reverse Sec. 704(c) gain or loss created by the revaluation of assets in the continuing partnership. After numerous comments, the IRS revoked Rev. Rul. 2004-4312 and issued proposed regulations13 that will apply the principles of Rev. Rul. 2004-43 to property distributions following assets-over partnership mergers. The proposed regulations provide that, for any property that had been contributed to either the transferor partnership or the transferee partnership before the merger, the seven-year period will not restart for the original Sec. 704(c) gain or loss. However, for newly created Sec. 704(c) gain or loss in property that was contributed by the transferor partnership to the transferee partnership, a new seven-year period begins on the date of the merger. In addition, for purposes of Sec. 737(b), net precontribution gain includes newly created Sec. 704(c) gain or loss in property contributed by the transferor partnership.

Regs. Sec. 1.704-3 provides that Sec. 704(c) allocations are generally made on a property-by-property basis. Regs. Sec. 1.704-3(e)(3) allows securities partnerships to aggregate gains and losses from qualified financial assets (defined as any personal property (including stock) that is actively traded) when determining reverse Sec. 704(c) gains and losses. In addition, if the securities partnership is a management company, its qualified assets include stock, debt, and derivatives. A partnership is a securities partnership if it is either a management company or an investment partnership and the partnership makes all of its book allocations in proportion to the partners’ relative book capital accounts. Rev. Proc. 2007-5914 expands the types of financial assets that qualify for aggregation to include any personal property that is actively traded, an interest in a publicly traded partnership, and an interest in a lower-tier partnership that is an investment partnership or a qualified partnership. For qualified partnerships, permission to aggregate the gains and losses is automatic under this ruling, but once the partnership adopts an aggregation method it must be applied consistently.

Guaranteed Payments

Sec. 707(c) provides that to the extent determined without regard to the partnership’s income, payments made to partners for services or for the use of capital are considered to be made to someone who is not a member of the partnership. These guaranteed payments are treated as compensation to the partner, and the partnership is allowed a deduction for the same amount. In Rev. Rul. 2007-40,15 the IRS had to address whether a transfer of partnership property to a partner in satisfaction of a guaranteed payment should be treated as a sale or as a distribution. In this instance the partnership bought land. Later, when the fair market value (FMV) of the land equaled the guaranteed payment owed to the partner, the partnership transferred the land to him. Under Sec. 1001, a taxpayer that conveys appreciated property in satisfaction of an obligation or in exchange for the performance of services must recognize the gain equal to the difference between the basis in the distributed property and the FMV. Thus, the IRS concluded that the land transfer in satisfaction of a partnership’s obligation to make a guaranteed payment was a sale or exchange under Sec. 1001 and could not be treated as a distribution under Sec. 731. Therefore, the partnership would have to recognize a gain on this transaction.

Domestic Production Activities Deduction

The American Jobs Creation Act of 2004, P.L. 108-357, created Sec. 199, which allows a deduction for qualified domestic production activities. The deduction is limited to the lesser of the allowable percentage times the qualified production activities income or taxable income but cannot be more than 50% of W-2 wages. The Tax Increase Prevention and Reconciliation Act of 2005, P.L. 109-222 (TIPRA), made some amendments to Sec. 199 related to W-2 wages. TIPRA states that the 50% of wage limitation applies only to wages generated in the qualified production activity. This means that wages for employees not involved in the domestic production activity would not count for limitation purposes. Therefore, taxpayers will have to trace wages related to domestic production activities in 2007. In addition, the IRS issued Rev. Proc. 2007-34,16 which specifies the conditions under which certain partnerships may choose to calculate qualified production activities income (QPAI) and W-2 wages at the entity level. Eligible entities include Sec. 861 partnerships, an eligible widely held passthrough entity, and an eligible small passthrough entity. In addition, this revenue procedure provides that if QPAI and W-2 wages are computed at the entity level, they will be passed through to the partners on the Schedule K-1.

Nonqualified Deferred Compensation (Sec. 409A)

In Notice 2005-1,17 the IRS set forth its initial guidance on the application of Sec. 409A. This year the IRS issued final regulations18 that generally follow the proposed regulations and incorporate the guidance in the notice. Unfortu­nately, no additional guidance on partnerships was issued in the final regulations. Sec. 409A may apply to ar­rangements between a partner and a partnership that provide for the deferral of compensation; however, the regulations do not address this issue. Until future regulations are published in this area, the relevant guidance for partnerships and LLCs is Q&A 7 in Notice 2005-1. Q&A 7 provides that taxpayers may treat the issuance of a partnership interest, including a profits interest, or an option to purchase a partnership interest, under the same principles governing equity issues. The IRS has also indicated that, until further guidance is issued, Sec. 409A will apply to guaranteed payments described in Sec. 707(c), as well as the right to receive such payments in the future, only where the guaranteed payment is for services and the partner providing the services does not include the payment in current income.

Sale of Qualified Small Business Stock

Sec. 1045 allows a noncorporate tax­payer, including a partnership that holds qualified small business (QSB) stock for more than six months, to elect to defer the gain on the stock’s sale if the tax­payer purchases replacement QSB stock. The benefits of Sec. 1045 with respect to the sale of QSB stock by a partnership flow through to the noncorporate partners. Final regulations on the application of Sec. 1045 to partnerships and their partners were issued in 2007.19 These regulations provide rules concerning the deferral of gain on a partnership’s sale of QSB stock and a partner’s sale of QSB stock distributed by a partnership. The regulations hold that an interest in a partnership that owns QSB stock should not be treated as an investment in QSB stock. However, they do allow an eligible partner of a partnership that sells QSB stock to elect to apply Sec. 1045 if the eligible partner purchases replacement QSB stock directly or through the purchase of a partnership interest that purchases the replacement QSB stock.

Deductibility of Losses

Three items determine whether a partner can deduct his or her share of partnership losses currently: (1) partnership interest basis under Sec. 704(d); (2) Sec. 465 amount at risk; and (3) Sec. 469 passive activity income. In Hubert Enterprises, Inc.,20 a subsidiary of the parent company owned interests in an LLC. The LLC amended its operating agreement to include a deficit restoration obligation (DRO) that obligated the LLC members to satisfy any negative balances in their capital accounts on liquidation. The taxpayer took the position that the DRO created a liability that increased the members’ at-risk basis. As such, they deducted the loss allocated to them from the LLC. The IRS and the Tax Court disagreed, stating that if the DRO created a liability, it was contingent on the member’s liquidation of its interest. Since the member did not liquidate its interest, it could not be at risk for that amount, and the loss was disallowed. The taxpayer appealed to the Sixth Circuit. The appellate court determined that the Tax Court did not address whether economic circumstances beyond the LLC members’ control might force liquidation of their interests, which might cause the members to become liable for a portion of the LLC’s debts under the DRO. Thus, the Sixth Circuit vacated the Tax Court decision and remanded the case back to the Tax Court to allow the parties to develop a better record so that the Tax Court could determine if the DRO rendered the taxpayer the “payor of last resort,” which would create at-risk basis for the member.

In another case,21 a taxpayer claimed losses in a partnership in which she contributed cash and her ex-husband contributed goods and services. The IRS disallowed the losses because the taxpayer did not have sufficient basis in her partnership interest. The taxpayer was able to show that her husband did not have the resources to make cash contributions to cover the partnership’s operating shortfall. Rather, it was the taxpayer who provided the additional cash for operations that created additional basis in her partnership interest. The court agreed with the taxpayer and allowed the deduction.

The taxpayer in Karason 22 was not so fortunate. In this case, the taxpayer was a partner in a family partnership that invested in property. The taxpayer was allocated losses from the partnership that he deducted on his personal tax return. The IRS disallowed the deduction because he did not have adequate basis in his partnership interest. All the taxpayer provided to substantiate his basis was a one-page typed statement of his capital account, but he had nothing to support the amounts on the statement. Because the taxpayer failed to substantiate his basis in the partnership, the Tax Court denied the loss the taxpayer had deducted. What makes this case more interesting is that the taxpayer had been an IRS agent for over 17 years and should have known what type of documentation is needed to substantiate basis.

Economic Substance

The first principle of tax law is that taxpayers are entitled to structure their business transactions in a manner that produces the least amount of tax. However, business transactions must have economic substance to be sustained. For a transaction to have economic substance, it must have a reasonable possibility of a profit and there should be a tax-independent business purpose behind the transaction. The IRS has recently been very diligent in examining transactions that it considers to lack economic substance. In 2007, the first decision was issued on the so-called Son of Boss tax shelter.

In Klamath Strategic Investment Fund, LLC,23 with the help of an investment adviser as the limited partner, the taxpayers formed an LLC to trade in foreign currency. To effect this transaction, the taxpayers contributed cash to the LLC through separate single-member LLCs (SMLLCs) that they each owned. In addition to the original cash contribution, the SMLLCs borrowed funds from a foreign bank that the limited partner suggested, contributed the loan proceeds to the LLC, and assigned the loans to the LLC. The LLC then entered into an interest rate swap with the bank, where the LLC deposited the funds in accounts with the same bank and received interest in return. The interest rate received from the bank was less than the rate on the loans, with the difference being paid out of the original contribution to the LLC. The LLC incurred losses that the taxpayers claimed on their returns. The IRS argued that the transactions were shams and lacked economic substance. The Tax Court agreed with the IRS finding that even though the taxpayers intended to profit by currency trading, the limited partner and the bank never intended for the loans to have economic substance, and there was no reasonable expectation that these transactions would produce a profit. Thus, the transactions lacked economic substance and the losses were disallowed. However, the Tax Court did find that the taxpayers had incurred actual economic losses relating to their investment in the LLC that were separable from the tax benefits of the LLC transactions and thus allowed these deductions.

In addition, the IRS tried to assess four different penalties related to the income understatement. The Tax Court disallowed the penalties because it found that the taxpayers entered into the transaction for the purpose of making a profit and did not have knowledge of the actions of the other parties. The IRS appealed the decision on the penalties, but it was denied by the district court.

Distributions

Under Sec. 731(a), partners will recognize a gain to the extent they receive cash in excess of their basis in their partnership interest. Chief Counsel Advice 20065001424 addressed a situation in which, due to an ongoing disagreement, the taxpayer’s interest in the partnership was being liquidated. To effect this liquidation, the partnership formed an LLC that purchased a house. The partner then took out a mortgage against the house and used the proceeds to pay the LLC for the house, which the LLC transferred to the partner in exchange for his partnership interest. The taxpayer treated the transaction as a liquidating distribution under Sec. 731, and neither the partnership nor the partner reported any gain or loss. The IRS concluded that Sec. 731 did not apply in this instance because the property was acquired solely for distribution and was not related to the partnership’s business; the transaction should therefore be disregarded. In addition, the IRS argued that it could not be a distri­bution because the partnership was never considered the owner of the property. However, the Service contended that even if the house were properly considered to be the partnership’s property, the transaction would still not qualify under Sec. 731 because it lacked economic substance.

Sales of Partnership Interests

Sec. 741 provides that in the case of a sale or exchange of a partnership interest, gain or loss recognized to the transferor partner is considered gain or loss from the sale or exchange of a capital asset, except as otherwise provided in Sec. 751. Sec. 751(a) provides that the amount received by a transferor partner in exchange for all or part of a partnership interest shall be considered as an amount realized from the sale or exchange of property other than a capital asset, to the extent the amount is attributable to unrealized receivables or inventory. In 2007, the IRS25 answered the question of whether a taxpayer could report income from the sale of his or her interest in a partnership under the installment method to the extent that it represents income attributable to unrealized receivables for payment of services rendered. The IRS determined that a taxpayer could not report income from the sale of a partnership interest under the installment method to the extent it is attributable to unrealized receivables under Sec. 751(c)(2). The Service justified this answer based on the fact that a taxpayer could not use the installment method on a direct sale of an unrealized receivable for payment of services. However, the installment method could be used for the balance of the income realized from the sale.

Sec. 754 Election

When a partnership distributes property or a partner transfers his or her interest, the partnership can elect under Sec. 754 to adjust the basis of partnership property. A Sec. 754 election allows a step-up or step-down in basis under either Sec. 734(b) or Sec. 743(b) to reflect the FMV at the time of the exchange. This election has the advantage of not taxing the new partner on gains or losses already reflected in the purchase price of his or her partnership interest. The election must be filed by the due date of the return for the year the election is effective and normally is filed with the return. If a partnership inadvertently fails to file the election, it can ask for relief under Regs. Secs. 301.9100-1 and -3.

In several rulings in 2007,26 the IRS granted an extension of time to make a Sec. 754 election. In each case, the partnership was eligible to make the election but inadvertently omitted the election when filing its return. The Service reasoned that the partnership in each case had acted reasonably and in good faith and granted an extension to file the election under Regs. Secs. 301.9100-1 and -3. Each partnership had 60 days after the ruling to file the election. The extension was granted even when the partnership was a foreign partnership.

In two other instances in 2007,27 a partner died and the partnership failed to file a timely Sec. 754 election for an optional basis adjustment. As with the other rulings, the Service concluded that these were inadvertent failures and granted the partnerships a 60-day extension to file the election.

Likewise, in another situation28 involving a partner who died, an upper-tier partnership (UTP) owned an interest in an LLC, the lower-tier partnership (LTP). The UTP made a valid Sec. 754 election when the partner died. The LTP intended to file a Sec. 754 election but inadvertently neglected to do so. Since the Sec. 754 optional basis adjustment was available to both the UTP and the LTP, the Service granted the LTP relief under Regs. Sec. 301.9100-3 and gave it a 60-day extension to file the election.


EditorNotes

Dr. Burton is vice chair of the AICPA Tax Division’s Partnership Taxation Technical Resource Panel.

For more information about this article, contact Dr. Burton at haburton@uncc.edu.


Notes

1 IR-2007-138 (8/2/07).

2 River City Ranches #1 Ltd., TC Memo 2007-171.

3 Goldberg, TC Memo 2007-81.

4 Nehrlich, TC Memo 2007-88.

5 IRS Letter Ruling 200734003 (5/15/07).

6 Chong, TC Memo 2007-12.

7 Burke, TC Memo 2005-297.

8 Burke, 485 F3d 171 (1st Cir. 2007).

9 Rev. Proc. 2007-65, 2007-45 IRB 967.

10 AM 2007-002 (1/11/07).

11 Rev. Rul. 2004-43, 2004-18 IRB 842.

12 Rev. Rul. 2005-10, 2005-7 IRB 482.

13 REG 143397-05, 72 Fed. Reg. 46,932 (8/22/07).

14 Rev. Proc. 2007-59, 2007-40 IRB 745.

15 Rev. Rul. 2007-40, 2007-25 IRB 1426.

16 Rev. Proc. 2007-34, 2007-23 IRB 1345.

17 Notice 2005-1, 2005-2 IRB 274.

18 TD 9321, 72 Fed. Reg. 19,233 (4/17/07).

19 TD 9353, 72 Fed. Reg. 45,346 (10/1/07).

20 Hubert Enters., Inc., 99 AFTR2d 2528 (6th Cir. 2007).

21 Tripp, TC Summ 2007-174.

22 Karason, TC Memo 2007-103.

23 Klamath Strategic Inv. Fund, LLC, 99 AFTR2d 2001 (E.D. Tex. 2007).

24 IRS CCA 200650014 (12/15/06).

25 IRS CCA 200722027 (4/27/07).

26 IRS Letter Rulings 200731018 (8/3/07), 200714006 (4/6/07), and 200714005 (4/6/07).

27 IRS Letter Rulings 200729024 (7/20/07) and 200738009 (9/21/07).

28 IRS Letter Ruling 200721005 (5/25/07).

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