IRS Attacks Leveraged Partnerships

IRS regulations’ restricting taxpayer’s ability to structure leveraged partnerships were drafted with the intent to eliminate leveraged partnerships through the use of what the IRS perceived as abuses of the debt allocation rules. As of January 3, 2017, when a taxpayer contributes property to a partnership, the Temporary Regulations treat all partnership liabilities (with limited exceptions) as non-recourse, even if the taxpayer is personally liable on some or all of the debt. And the “bottom dollar” guarantees are no longer respected, thereby depriving taxpayers of what perhaps was their most effective way of obtaining sufficient debt to either avoid gain or receive a debt-finance distribution. Taxpayers and their advisers will need to deal with this new paradigm.

Read more and download the whitepaper below. For additional information on the views expressed in the whitepaper, please contact the authors at FTI Consulting.