Coalition of

Publicly  

Traded  

Partnerships__________________________________

 

SUMMARY AND LINKS TO FULL TEXT 

OF RECENTLY ISSUED REGULATIONS  

 

 

Final Regulations on Partnership Transactions Involving Long-Term Contracts, July 16, 2004.

 

    On July 16, 2004 the IRS published final regulations governing partnership transactions involving contracts accounted for under a long-term contract method ("long-term contract") .  The proposed regulations were published on August 6, 2003.   The final regulations make the following changes to the proposed regulations:

 

 The regulations are effective July 16, 2004, and apply to transactions occurring on or after May 15, 2002.

                    HTML version                                        PDF version (Requires Adobe Acrobat)

 

 

Draft Schedule K-1 for  2004 Tax Year,  June 2004

 

    The IRS has issued a draft of a revised, scannable K-1 form for the 2004 tax year.  A link to the form is below.  You can e-mail comments on the form to the IRS by going to the Forms and Publications Comments page on the IRS website.

 

        Draft Schedule K-1 for 2004                            Link to IRS Forms and Publications Comments Page

 

Final Regulations Relating to Capital Account Maintenance Rules Under Section 704, May 6, 2004

 

    On July 2, 2003, the IRS published proposed regulations expanding the circumstances under which partnerships could increase or decrease the capital accounts of partners to reflect a revaluation to fair market value of property on the partnership's books.  A revaluation and concomitant change in partners' capital acounts would be allowed in connection with the grant of a partnership interest (other than a de minimis interest) for the benefit of, the partnership by an existing partner acting in a partner capacity, or by a new partner acting in a partner capacity or in anticipation of being a partner. On May 6, 2004, the IRS published final regulations which adopt the proposed regulations without change.  The expansion will apply to grants of partnership interests made on or after May 6.

 

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Final and Temporary Regulations:  Partner’s Distributive Share of Foreign Tax Expenditures, April 21, 2004

        On April 21, 2004, the IRS and the Treasury Department issued final and temporary regulations governing the allocation of partnership expenditures for foreign taxes, and the credit allowed for such expenditures, under section 704.  Section 704(b) requires that allocations of partnership income, gain, loss, deduction, and credit have substantial economic effect, or else be made in accordance with the partners’ interests in the partnership.   The regulations under this section define when an allocation has an economic effect and when that effect is substantial.  The regulations also state that the allocation of certain items, including tax credits, can never have a substantial economic effect and provide guidance on allocating such items in accordance with the partners’ interests. 

Various sections of the Code allow partners to take the credit for their proportionate share of foreign taxes paid or accrued by the partnership, and make clear that all deductions, elections, etc. relating to foreign taxes are taken at the partner, not the partnership level.   These taxes are fully creditable against the partner’s U.S. tax liability, subject to the foreign tax credit limitation.

The temporary regulations establish a safe harbor under which an allocation of a foreign tax expenditure will be deemed to be in accordance with the partners’ interests in the partnership if 1) the partnership agreement satisfies specific requirements for economic effect under Reg. §1-7041(b)(2)(ii)(b) or (d) and 2) the allocation in question is proportionate to the partner’s distributive share of the partnership income to which the tax relates.   If this safe harbor is not satisfied, the allocations will be tested under the “partners’ interest in the partnership” standard, under which the determination of a partner’s interest is made by taking into account all relevant circumstances relating to the economic arrangement of the partners. 

The preamble to the temporary regulations also puts partnerships on notice that the IRS and Treasury do not accept the position that in determining if the economic effect of a partnership allocation is substantial, they need not consider any tax consequences to an owner of the partner resulting fom the allocation.  They plan to issue guidance on the application of the section 704(b) regulations to these situations.

 The regulations are effective for partnership tax years beginning on or after April 21, 2004.  A transition rule is provided for existing partnerships with partnership agreements entered into before that date. 

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Revenue Ruling on Application of Sections 704(c) and 737 to Assets-Over Partnership Mergers, April 12, 2004.  

On April 12, 2004 the IRS issued a revenue ruling (Rev. Rul. 2004-43)on the application of sections 704(c)(1)(b) and 737(b) to “asset-over” partnership mergers—i.e., those in which the terminating partnership is treated as having contributed all of its assets and liabilities to the resulting partnership, in exchange for a partnership interest in the resulting partnership.   The issues and holding were as follows:

1.      Does section 704(c)(1)(b) (which requires that a contributing partner recognize gain or loss if the contributed property is distributed to another partner within 7 years of contribution and his basis be adjusted accordingly) apply to §704(c) gain or loss that is created in an assets-over partnership merger?

Holding:   Section 704(c)(1)(b) applies to newly created §704(c) gain or loss in property contributed by the transferor partnership to the continuing partnership in an assets-over partnership merger, but does not apply to newly recreated reverse §704(c) gain or loss resulting from a revaluation of property in the continuing partnership.

2.      For purposes of section 737(b) (which defines net precontribution gain for purposes of the rule that a partner must recognize gain if the partnership distributes property other than cash to him within 7 years of the contribution), does net precontribution gain include §704(c) gain or loss created in an assets-over partnership merger?

      Holding: For purposes of section 737(b), net precontribution gain includes newly created §704(c) gain or loss in property contributed by the transferor partnership to the continuing partnership in an assets-over partnership merger, but does not include newly recreated reverse §704(c) gain or loss resulting from a revaluation of property in the continuing partnership.

Rev. Rul. 2004-43 was published in the May 3, 2004 Internal Revenue Bulletin, 2004-18 I.R.B.

2004-18 I.R.B. (May 3, 2004) (PDF file, requires Adobe Acrobat)

 Proposed Regulations Governing Tax Treatment of Installment Obligations and Property Acquired Pursuant to a Contract Under Sections 704(c) and 737, November 24, 2003

            Section 704(c) contains several provisions dealing with unrecognized gain or loss in property contributed to a partnership by a partner—that is, the difference between the partner’s basis in the property and its fair market value at the time of the contribution.  Section 704(c)(1)(A) requires that the income, deductions, gain, or loss from the property be shared among all partners so as to take this difference into account.—i.e., allocate it so as to avoid shifting the tax consequences of the built-in gain or loss away from the contributing partner. 

            Under section 704(c)(1)(B), if the contributed property (“704(c) property”) is distributed to another partner within seven years of its contribution, the contributing partner must realize the gain or loss that would have been allocated to him if the property had been sold at fair market value. Under section 737(a) the contributing partner must also recognize gain if the partnership subsequently distributes property other than money to him, measured as the lesser of 1) the excess of the fair market value of the distributed property over the adjusted basis of his partnership interest or 2) his net precontribution gain.  And under both these sections, if no gain or loss is recognized when the partnership disposes of the 704(c) property because it is exchanged for new property, the new property becomes 704(c) property with the same built-in gain or loss as the property disposed of.  

         The proposed regulations clarify (by amending Reg. §1.704-3(a)(8)) what happens under these rules when the partnership disposes of the property in an installment sale—i.e., exchanges the property for an installment obligation—and when the contributed  property is a contract:

1.      The installment obligation received in an installment sale will be treated as the section 704(c) property.

2.      If a contract is the 704(c) property contributed by a partner, and the partner subsequently acquires property pursuant to the contract in a transaction in which not all gain or loss is recognized, the acquired property is treated as the 704(c) property.

3.      When installment obligations and contracts are treated as 704(c) property under these rules, the rules of sections704(c)(1)(B) and 737 will apply.  Thus, the contributing partner must recognize the built-in gain or less if the obligation or contract is distributed to another partner within seven years, or if the contributing partner receives a distribution of other property from the partnership.

These regulations are proposed to apply to installment obligations received by a partnership on or after November 24, 2003 in exchange for 704(c) property, and to property acquired by a partnership on or after November 24, 2003 pursuant to a contract that is 704(c) property.

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Final and Temporary Regulations Authorizing Exceptions to §6031(a) for Tax-Exempt Income, November 10, 2003

            Section 6031(a) of the Internal Revenue Code and the regulations thereunder require every partnership to file a return each year stating its items of income and deduction and other information, and to furnish each partner with a Schedule K-1.  The statute authorizes exceptions from this requirement, and the regulations have provided two: partnerships having no income, deduction, or credits for a tax year; and eligible partnerships electing exclusion from Subchapter K under §1.762-2(b)(2) are exempted from the requirement.

            On November 10, 2003, the IRS and the Treasury Department published final and temporary regulations giving the IRS Commissioner the authority to provide an exception from the 6031(a) reporting requirements for partnerships in situations in which substantially all of the partnership income is derived from tax-exempt bonds or shares in a regulated investment company paying exempt-interest income. These partnerships may find that an annual income reporting requirement is incompatible with the requirements of the tax-exempt bond market.  In conjunction with the publication of the regulations, the Commissioner published Revenue Procedure 2003-84, I.R.B. 2003-45 at 1159, which provides an exception from section 6031(a) for eligible tax-exempt bond partnerships.  Such partnerships may make a monthly closing election and, if they do so for the entire tax year, are not required to file a Form 1065 or issue Schedules K-1. This may be of benefit to those PTPs whose income is derived from tax-exempt mortgage revenue bonds or other tax-exempt interest.

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                                            Rev Proc. 2003-84 (I.R.B. 2003-48 )(PDF)

 

Proposed Regulations on Withholding Tax on Effectively Connected Taxable Income of Foreign Partners, September 3, 2003

 

        On September 3, 2003, the IRS published proposed regulations providing guidance under I.R.C.§1446, which requires partnerships to pay a withholding tax on the effectively connected taxable income (ECTI) allocable to foreign partners.  The proposed regulations update and will eventually replace the guidance provided in Rev. Proc. 89-31.

 

        The general rule for partnerships is that a partnership with foreign partners must determine the ECTI allocable to each such partner, calculate the tax on this income using the highest tax rate for the type of taxpayer (individual or corporate), and pay the tax in quarterly installments.  However, the regulations provide special rules for PTPs.  In particular, PTPs are to withhold the tax from their distributions to foreign partners at the applicable tax rate rather than pay estimated tax. For PTPs whose units are held by nominees n "street name," it may be hard to identify these partners.

 

        The proposed regulations deal with the "street name" issue by providing that when a nominee receives a distribution from a PTP which is subject to withholding and is to be paid to a foreign person, the nominee may be treated as a withholding agent, thus shifting the burden of withholding from the PTP to the nominee.  However, this will be true only to the extent that the nominee has received a “qualified notice,” as defined in the regulations, of the amount of the distribution that is attributable to effectively connected income, gain, or loss of the partnership.  

 

    The proposed regulations indicates that “qualified notice” regarding a distribution is notice made “in accordance with the notice requirements with respect to dividends set forth in 17 CFR 240.10b-17(b)(1) or (3).”  Under those requirements, notice will be deemed to be properly given  if notice either 1) is given to the National Association of Securities Dealers at least 10 days before the record date and includes specific information with regard to the security (17 CFR§ 240.10b-17(b)(1)), or 2) is given to the securities exchange on which the PTP is registered in accordance with procedures of that exchange which contain requirements that are substantially comparable to those of the NASD.

 

        The proposed regulations also modify several of the rules provided for PTPs in Rev. Proc. 89-31.  First, they define "publicly traded partnership" solely by reference to section 7704 rather than also referencing the regulations under section 1445(e).  Second, the proposed regulations require PTPs to follow the same documentation requirements and presumptions as other partnerships--i.e., obtain a Form W-8 BEN, W-8-IMY, or W-9 if they do not use other means to determine their partners' status, and presume that the partner is foreign if they have no knowledge otherwise.  Finally, under the proposed regulations, the  tax rate for withholding would be the same as for other partnerships--the highest individual or corporate rate, as applicable to the partner--rather than using the individual rate for all partners as is now the rule.  

 

        The Coalition submitted comments on these regulations to the IRS on November 13, 2003.  The comments requested clarification that a PTP may provide the necessary "qualified notice" to shift the withholding burden to nominees that have properly identified themselves simply be notifying the NASD or the exchange on which the PTP's units are registered; and that providing such notice will effectively designate as withholding agents any nominees who have not identified themselves.

        

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Coalition Comments Submitted to the IRS

 

 

Partnership Transactions Involving Long-Term Contracts, August 6, 2003.

           On August 6, 2003, the IRS published proposed regulations governing partnership transactions involving contracts accounted for under a long-term contract method of accounting (“long-term contracts”).   These supplement final regulations relating to the long-term contract method of accounting under I.R.C. §460 that were issued in May 15, 2002.   These rules provide two ways of characterizing a transaction in which a long-term contract is transferred:  it may be either a “step in the shoes” transaction, in which the original taxpayer’s obligation to account for the contract terminates on the date of the transaction and the new taxpayer must use the old taxpayer’s methods of accounting for the transaction; or a “constructive completion” transaction in which the original taxpayer must recognize income from the contract as of the time of the transaction and the new taxpayer is treated as if it entered into a new contract on the date of the transaction.  Generally a section 721 distribution of a partnership interest, a transfer of a partnership interest, or a section 731 distribution of property other than a long-term contract is a step-in-the shoes transaction.

    The rules set forth in the proposed regulations are summarized below:

1)      If a partner contributes a long-term contract to a partnership, the partnership “steps in the shoes” of the partner with regard to the contract.  The partner’s basis in the partnership interest is increased by the adjusted basis of the contract.  Thus the partner increases his basis by the amount of gross receipts he has recognized under the contract and reduces it by the amount he has received or reasonably expects to receive (but has not recognized).  If the decrease exceeds the partner’s basis in the partnership, the excess is recognized as income. The partnership’s basis in the contract equals the partner’s basis in the contract.

2)      The principles of §704(c) and the applicable regulations will apply to a contributed long-term contract, and must be applied to any built-in income or loss attributable to the contract.

3)      The transfer of an interest in a partnership engaged in a long-term contract is also a “step-in-the-shoes” transaction if the partnership has closed its books on the contract.  For purposes of realizing gain or loss on the transfer, the long-term contract is treated as unrealized receivables under §751(c) and therefore treated as ordinary income or loss.  The amount of income or loss is the amount the partnership would take into account if it disposed of the contract for fair market value in a constructive completion transactions.

4)       If the partnership’s books are not closed with regard to the contract, the partnership will compute income or loss under the contract as if no change had occurred and may pro rate income from the contract under a reasonable method complying with §706.

5)       If all or part of a §743(b) basis adjustment is allocated to a long-term contract, the adjustment will reduce or increase, as the case may be, the transferee partner’s distributive share of income or loss from the contract.

6)      Distribution of a long-term contract from  partnership to a partner is treated as a constructive completion transaction, and the fair market value of the contract is treated as the amount realized in the transactions.

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Proposed Regulations Relating to Capital Account Maintenance Rules Under Section 704, July 2, 2003

            The regulations under section 704 provide rules for determining whether allocations under a partnership agreement have substantial economic effect, as required under section 704(b).  One requirement for substantial economic effect is compliance with capital account maintenance rules.  One of these rules, in §1.704(b)(2)(iv) is that property is generally reflected on the partnership’s books at historic cost rather than fair market value.  Newly contributed property, however, is valued in partners’ capital accounts at the fair market value at the time of contribution.  Partnerships may also revalue their assets to fair market value if there is a contribution to the partnership by a new or existing partner as consideration for a partnership interest; a distribution from the partnership to a retiring or continuing partner as consideration for an interest in the partnership, or if substantially all the partnership’s property consists of stock, securities, commodities, options, and similar interests that are readily tradable on the securities market.

             On July 2, 2003, the IRS issued proposed regulations expanding the circumstances in which revaluation of partnership assets to fair market value, and a corresponding change in the capital account of partners, will be permissible.  Under the proposed regulations, revaluation would be allowed in connection with the grant of a partnership interest (other than a de minimis interest) on or after final regulations are published in the Federal Register, as consideration for the provision of services to, or for the benefit of, the partnership by an existing partner acting in a partner capacity, or by a new partner acting in a partner capacity or in anticipation of being a partner.  The IRS also requested comments on another possible expansion:  allowing revaluations any time there is more than a de minimis bona fide change in the manner in which partners agree to share profits or losses.

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Proposed Regulations on Assumption by Partnership of Partner Liabilities, June 24, 2003

 

    On June 24, 2003, the IRS issued proposed regulations relating to the definition of liabilities under section 752 and the assumption of liabilities not meeting that definition.  The regulations, which correspond to similar rules for corporations in section 358(h), are intended to prevent the duplication and acceleration of loss through the assumption by a partnership from the partner of liabilities not meeting certain requirements.

 Definition of Liability    

        The proposed regulations revise Reg. §1-752-1(a)(1) to define which obligations are liabilities for purposes of 752.  A liability for this purpose is an obligation (i.e., a fixed or contingent payment) which:

1.      Creates or increases the basis of any of the obligor’s assets (including cash),

2.      Gives rise to an immediate deduction to the obligor, or

3.      Gives rise to an expense that is not deductible in computing the obligor’s taxable income and is not properly chargeable to capital

       The preamble states that Treasury and the IRS are considering adopting this definition of liability for Subchapter C as well and seek comments.

Partnership Assumption of Liability Not Meeting the Definition

        The proposed regulations define a §1.752-7 liability as one not meeting the definition in §1-752-1(a)(1).  If partnership assumes a partner’s §1.752-7 liability, the partner’s outside basis will not be reduced at the time of the assumption as it is in the corporate context.  If the partnership satisfies the §1.752-7 liability while the transferor of the liability is a partner in the partnership,, the deduction associated with the portion of the liability assumed by the partnership (i.e., the built-in loss) is allocated to the partner, reducing his outside basis. 

             Alternatively, the partner’s outside basis is reduced at the time that any of three events occurs: 1) a disposition (or partial disposition) by the partner of his partnership interest, 2) the liquidation of the partner’s interest, or 3) the assumption (or partial assumption) of the liability by another partner. The reduction equals the partner’s basis in the partnership interest over the adjusted value (fair market value increased by the partner’s share of partnership liabilities) or the remaining built-in loss associated with the §1.752-7 liability, whichever is less.

        After the occurrence of one of these events, the partnership (or in the third event, the assuming partner) is not entitled to a deduction or capital expense on the §1.752-7 liability to the extent of the remaining built-in loss.  However, if the partnership or assuming partner notifies the §1.752-7 liability partner of partial of complete economic performance of the liability, the partner may take a deduction or loss for the remaining §1.752-7 liability reduction (or, for partial payment, the amount paid by the partnership, up to the amount of the liability reduction).  Various rules are provided for how the deduction or loss is characterized, and also provide that the remaining built-in loss associated with the liability is treated for purposes of §705 and the capital accounting rules as a nondeductible, noncapital expense to the partnership. 

         If another partner assumes and satisfies the §1.752-7 liability, the assuming partner is treated as contributing cash to the partnership equal to the lesser of 1) the amount paid to satisfy the liability or 2) the remaining built-in loss associated with the liability at the time of redemption.  Adjustments as a result of this deemed contribution may take one of several forms, some of which cannot be taken into account until economic performance of the liability.  Any adjustment to the basis of an asset is taken into account over the asset’s recovery period.

        Exceptions are provided for liability associated with a contribution of at trade or business, and for liability with de minimis amounts of remaining built-in loss.  Provisions are included for transfers of liability among tiered partnerships and their partners and between partnerships and corporations.

        The regulations are proposed to apply to assumptions of§1.752-7 liabilities on or after June 24, 2003.  §1.752-6 of the proposed regulations, dealing with partnership assumption of a partner’s “§358(h)(3) liability” (the corporate version of §1.752-7 liability) is published as temporary regulations and apply to liabilities assumed by a partnership after Octoer 18, 1999 and before June 24, 2003.

    Proposed Regulations:                   HTML Version             PDF Version (Requires Adobe Acrobat)

    Temporary Regulations:                HTML Version             PDF Version (Requires Adobe Acrobat)

 

 

Final Regulations on Coordination of Sections 755 And 1060 for Allocation of Basis Adjustments Among Partnership Assets, June 9, 2003

On April 5, 2000, the IRS published proposed regulations coordinating sections 755 and 1060 by providing a method of allocating basis adjustment among partnership assets (a summary is on the archive page for 2000).   Section 1060 states that when a taxpayer acquires assets constituting a trade or business, and the basis in the assets is determined wholly by the taxpayer=s purchase price, basis is allocated among the assets by the Aresidual method”—i.e., the basis allocated to of each of the assets will be the asset=s fair market value, and any remaining amount of the purchase price after this allocation is allocated to intangible assets.  Section 1060(d) states that this rule will apply in the distribution of partnership property or a transfer of a partnership interest, but only for the purpose of determining the value of section 197 intangibles for the purpose of applying Code section 755.  Section 755 provides rules for allocating increases and decreases in the partnership=s adjusted basis under 734(b) and 743(b) among partnership assets. 

 The proposed regulations set forth the following process which applied to basis adjustment under sections 743(b) and 732(d).  First, the partnership’s gross value is determined as the amount that, if assigned to all partnership property, would result in liquidating distributions to all partners equal to the transferee’s basis immediately following the transfer—i.e., gross value is determined by reference to the amount paid by the transferee for his interest.  Next, partnership gross value is allocated among five classes of partnership assets in the following order:  1) first, to cash and general deposit accounts (other than certificates of deposit); 2) then to partnership assets other than cash, capital assets, section 1231(b) property, and section 197 intangibles (i.e., ordinary income property); 3) to capital assets and section 1231(b) property other than section 197 intangibles; 4) to section 197 intangibles other than goodwill and going concern value; 5) goodwill and going concern value.  If the value assigned to a class is less than the total of the fair market values of the assets within the class, the class value is allocated among the individual assets in proportion to their fair market values 

Generally, if partnership gross value exceeds the aggregate fair market value of the partnership=s assets, the excess must be allocated entirely to goodwill.  However, if goodwill could not under any circumstances attach to the assets, the excess gross value must be allocated among all assets other than cash in proportion to their fair market value (determined without regard to the residual method).

 The final regulations use the residual method to value all section 197 intangibles, not just goodwill and going concern value.   The partnership first determines the values of each of its assets other than section 197 intangibles, then determines partnership gross value.  The residual method iss then used to assign values to the partnership’s section 197 intangibles.  If the aggregate value of partnership property other than 197 intangibles is equal to or greater than partnership gross value, then all section 197 intangibles have a value of zero.  If partnership gross value is greater than the aggregate value of partnership property, the aggregate value of section 197 intangibles is deemed to be equal to the excess of gross value over aggregate property value.   The aggregate 197 value is allocated first among intangibles other than goodwill and going concern value, and then to those intangibles. 

Because the proposed regulations used the residual method to value all partnership assets and not just section 197 intangibles, they applied to all partnerships whether or not their assets constituted a trade or business.  The final regulations, however, apply the residual method only for the purpose of valuing section 197 intangibles, and thus apply only to partnerships whose assets constitute a trade or business.  

 The final regulations, like the proposed regulations, provide that the transferee’s basis in its partnership interest is the frame of reference for determining partnership gross value.  However, the final regulations also provide a single method for determining partnership gross value that applies to all 734(b) basis adjustments and to 743(b) basis adjustments resulting from transferred basis exchanges:  partnership gross value is the value of the entire partnership as a going concern, increased by the amount of partnership liabilities.   In addition, the final regulations, adopting a comment that the same method should apply to exchanged basis transactions, such as distriution of a partnership interest by a partnership, replaces all references to “transferred basis exchanges” with references to “substituted basis exhanges.” 

Finally, the final regulations add two clarifying rules for allocating basis adjustments under section 743(b) among a partnership’s assets in a transaction that is not a substituted basis transaction.   First, assets with respect to which no transferee partner has no interest in income, gain, losses, or deductions are not taken into account in allocating basis adjustments to capital assets.  Second, the amount of any decrease in basis allocated to an item of capital gain property may never exceed the partnership’s adjusted basis in that item.  Any excess must be applied to reduce the remaining basis, if any, of other capital gain assets pro rata in proportion to the partnership’s adjusted basis in those assets.

 The final regulations apply to transfers of partnership interests and distributions of property from partnerships occurring on or after June 9, 2003.

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Revenue Ruling on Partnership Consequences of Section 1031 Transaction Straddling Two Tax Years, May 11, 2003.

        On May 11, the IRS issued Revenue Ruling 2003-56, which addresses like-kind exchanges undertaken by a partnership that cover more than one tax year.  The ruling published in Internal Revenue Bulletin 2003-33 on June 9, 2003.  The revenue ruling answers the following question:  if a partnership enters into a qualifying deferred like-kind exchange under Code section 1031 under which property subject to a liability is transferred in one tax year, and property subject to a liability is received in the following tax year, are the liabilities netted for purposes of section 752 (which governs partners’ liabilities and their share of partnership liabilities)?  The Revenue Ruling says yes, the liabilities are netted.

        Internal Revenue Bulletin 2003-33 (Revenue Ruling 2003-56 is at page 985)

 

Proposed Regulations on the Tax Treatment of Noncompensatory Options and Convertible Instruments, January 22, 2003.

 

    On January 22, 2003, Treasury and the IRS issued proposed regulations concerning the treatment of options and convertible interests issued by a partnership which allow the holder to acquire an equity interest in the partnership by purchase or conversion.  The proposed regulation deal with call options, warrants, convertible debt, and convertible equity that are not issued in connection with the performance of services – i.e., noncompensatory options.

The proposed regulations:

Links to the proposed regulations and corrections to the text issued in March are below (PDF files requiring Adobe Acrobat)

        Proposed Regulations  

         March 28 Corrections  

 

 

Reports by the Treasury Inspector General for Tax Administration on the K-1 Matching Program, July 2002 and March 2003

 

         The Treasury Department's Inspector General for Tax Administration has issued two reports on the K-1 matching program in which it expresses concern about the potential for burdening taxpayers with unnecessary notices and recommends changes to Schedule E as one way of reducing this potential.

                        PDF Version (requires Adobe Acrobat)

                        PDF Version (requires Adobe Acrobat)

        

 

Archived Regulatory Material

 

2001-2002

2000