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Final Regs Issued on Debt Satisfied by a Partnership Interest - Emil Estafanous, CPA : Emil Estafanous, CPA

Final Regs Issued on Debt Satisfied by a Partnership Interest

The IRS on Nov 15 released final regulations on a focus of Sec. 108(e)(8) to partners and partnerships (T.D. 9557). The regulations yield manners for last a partnership’s liberate of indebtedness (DOI) income when it transfers a partnership seductiveness to a creditor to prove a partnership debt.

The regulations also plead how Sec. 721 relates when a partnership’s debt is contributed to a partnership in sell for a collateral increase seductiveness in a partnership. The regulations also cover how partnership DOI income is allocated as a smallest benefit chargeback underneath Sec. 704.

The American Jobs Creation Act of 2004, P.L. 108-357, stretched a range of Sec. 108(e)(8) to embody partnership discharges of indebtedness. Under Sec. 108(e)(8), if a debtor partnership transfers a collateral or increase seductiveness in a partnership to a creditor in compensation of a debt (recourse or nonrecourse), a partnership is treated as carrying confident a debt with an volume of income equal to a satisfactory marketplace value (FMV) of a partnership interest. If a debt exceeds a FMV of a eliminated interest, a additional is DOI income that contingency be enclosed in a distributive shares of a partners who were partners immediately before a debt discharge.

The regulations yield that a FMV of a partnership seductiveness is a murder value—that is, a volume of money or skill that a creditor would accept for a equity seductiveness if, immediately after a transfer, a partnership sole all a resources for money equal to a FMV of those resources and afterwards liquidated (Regs. Sec. 1.108-8(b)(2)(iii)). However, this murder value can be used to establish a FMV of a partnership seductiveness usually if 4 conditions are met (Regs. Secs. 1.108-8(b)(2)(i)(A)–(D)). If a conditions are not satisfied, a FMV of a eliminated partnership seductiveness is formed on all a contribution and circumstances.

The regulations are effective on their announcement in a Federal Register.

About Emil Estafanous, CPA
Certified Public Accountant (CPA) Tax Professional committed in representing taxpayers and resolving their tax problems.

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