At an American Bar Association Section of Taxation meeting attended by EY tax professionals on September 30, 2016, in Boston, IRS and Treasury officials indicated that forthcoming temporary regulations under Section 707 will treat all debt as nonrecourse for disguised sale purposes. The temporary regulations are scheduled to be published on October 5, 2016.

Specifically, the regulations will require a partner's share of liability in the partnership to be determined in accordance with the partner's interest in the partnership profits and without taking into account any amount of the liability for which another partner bears the economic risk of loss under Treas. Reg. Section 1.752-2. The temporary regulations under Section 707 will be a major change that will adversely affect the way many partners withdraw cash from partnerships on a tax-deferred basis under the existing regulations.

The temporary regulations under Section 707 will apply to transactions for which all transfers occur on or after 90 days from issuance.

At the meeting, the Service and Treasury officials also provided an overview of final, temporary and proposed regulations subsequently issued October 4, 2016, on disguised sales of property between a partner and its partnership under Section 707 and the treatment of partnership liabilities under Section 752. The proposed and final regulations also are scheduled to be published on October 5, 2016.

The regulation package addresses comments received in response to proposed regulations (REG-119305-11) under Section 707 and Section 752 issued in 2014 (the 2014 proposed regulations). Comments by Service and Treasury officials revealed that the regulation package, while adopting many aspects of the 2014 proposed regulations, also contains some significant departures from those regulations.

A Tax Alert on the regulation package is forthcoming.

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