A hedge fund manager may be required to maintain separate tracking of a single partnership interest into several buckets to avoid the negative tax consequences of the short-term capital gain treatment of assets held from one to three years under Sec. 1061 for certain partnerships on the economic return of their invested capital.
Allocations & Substantial Economic Effect
The final regulations provide relief to hedge funds and their passive investors, although the regulations may increase the administrative burden and reporting requirements on hedge fund managers.
This article reviews and analyzes recent law changes as well as rulings and decisions involving partnerships.
In FAA 20204201F, the IRS concluded that the Sec. 704(c) allocation method adopted by a partnership between a U.S. corporation and its domestic and foreign affiliates was unreasonable under the Sec. 704(c) anti-abuse rule.
If LLC members’ tax allocations are not made in accordance with the members’ interests in the LLC, they must fit into the substantial-economic-effect safe harbor.
This item discusses final regulations providing guidance on when partnership liabilities are recognized as recourse under Sec. 752.
In highly leveraged partnerships, bottom-dollar payment obligations have been used by partners to increase their at-risk basis in a partnership to use loss allocations or to receive nontaxable cash distributions.
Disguised sale occurs when a partner(s) engages in a transaction that, when viewed together with a partnership, involve property and are characterized as the sale or exchange of property.
The IRS announced that it was withdrawing temporary regulations on the treatment of partnership liabilities for disguised-sale purposes and proposing to reinstate the old rules.
The net value rule determines the extent to which a partner who owns a partnership interest through a disregarded entity bears the economic risk of loss for a partnership recourse liability.
Should the IRS consider recognizing a contributing partner’s economic risk of loss when the regulations are finalized?
The regulations address disguised sales of property by or to a partnership and allocations of excess nonrecourse liabilities to partners.
The IRS issued three sets of regulations addressing issues of disguised sales of property by or to a partnership and allocations of excess nonrecourse liabilities to partners.
Regs. Sec. 1.752-7 defines what constitutes a 1.752-7 liability, how these liabilities are treated when assumed by the partnership or another partner, and the impact of a later sale (or redemption) of a partnership interest by the partner that contributed the debt to the partnership.
This article reviews and analyzes recent rulings and decisions involving partnerships. The discussion covers developments in partnership formation, debt and income allocations, distributions, passive activity losses, and basis adjustments.