Rule2024-27840
Recourse Partnership Liabilities and Related Party Rules
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
December 2, 2024
Effective
December 2, 2024
Issuing agencies
Treasury DepartmentInternal Revenue Service
Abstract
This document contains final regulations relating to recourse liabilities of a partnership and special rules for related persons. These regulations affect partnerships and their partners.
Full Text
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<title>Federal Register, Volume 89 Issue 231 (Monday, December 2, 2024)</title>
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[Federal Register Volume 89, Number 231 (Monday, December 2, 2024)]
[Rules and Regulations]
[Pages 95108-95116]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-27840]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 10014]
RIN 1545-BL21
Recourse Partnership Liabilities and Related Party Rules
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final rule.
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SUMMARY: This document contains final regulations relating to recourse
liabilities of a partnership and special rules for related persons.
These regulations affect partnerships and their partners.
DATES:
Effective date: These regulations are effective on December 2,
2024.
Applicability dates: For dates of applicability, see Sec. Sec.
1.704-2(l)(1)(vi), 1.752-2(l)(4), and 1.752-5(a).
FOR FURTHER INFORMATION CONTACT: Concerning these final regulations,
contact Caroline Hay of the Office of Associate Chief Counsel
(Passthroughs and Special Industries), (202) 317-6850 (not a toll-free
number).
SUPPLEMENTARY INFORMATION:
Authority
This document amends the Income Tax Regulations (26 CFR part 1)
under
[[Page 95109]]
section 752 of the Internal Revenue Code (Code) regarding a partner's
share of a recourse partnership liability (final regulations).
The final regulations are issued under the express delegation of
authority under section 7805(a) of the Code, which provides that
``[t]he Secretary shall prescribe all needful rules and regulations for
the enforcement of [the Code], including all rules and regulations as
may be necessary by reason of any alteration of law in relation to
internal revenue.''
Background
Section 752(a) provides, in general, that an increase in a
partner's share of partnership liabilities (or an increase in a
partner's individual liabilities by reason of the assumption by the
partner of partnership liabilities) will be considered a contribution
of money by the partner to the partnership. Conversely, section 752(b)
provides that a decrease in a partner's share of partnership
liabilities (or a decrease in a partner's individual liabilities by
reason of the assumption by the partnership of the individual
liabilities) will be considered a distribution of money to the partner
by the partnership.
When determining a partner's share of partnership liabilities, the
existing regulations under section 752 (existing Sec. Sec. 1.752-1
through 1.752-3) distinguish between two categories of liabilities--
recourse and nonrecourse. In general, a partnership liability is
recourse to the extent that a partner or related person bears the
economic risk of loss (EROL) as provided in existing Sec. 1.752-2 and
nonrecourse to the extent that no partner or related person bears the
EROL under existing Sec. 1.752-2. See existing Sec. 1.752-1(a)(1) and
(2). A partner bears the EROL for a partnership liability if the
partner or related person: (1) has a payment obligation as provided in
existing Sec. 1.752-2(b) (except as provided in existing Sec. 1.752-
2(d)(2)); (2) is a lender to the partnership as provided in existing
Sec. 1.752-2(c) (except as provided in existing Sec. 1.752-2(d)(1));
(3) guarantees payment of interest on a partnership nonrecourse
liability as described in existing Sec. 1.752-2(e); or (4) pledges
property as security for a partnership liability as provided in
existing Sec. 1.752-2(h).
On December 16, 2013, the Department of the Treasury (Treasury
Department) and the IRS published in the Federal Register (78 FR 76092)
a notice of proposed rulemaking (REG-136984-12) that would amend the
existing regulations under section 752 relating to a partner's share of
a recourse partnership liability and the rules for related persons
(proposed regulations). The provisions of the proposed regulations are
explained in greater detail in the preamble to the proposed
regulations. The Treasury Department and the IRS received two comments
responding to the proposed regulations. A public hearing on the
proposed regulations was not requested or held.
The Treasury Department and the IRS are mindful that the proposed
regulations were issued approximately eleven years ago. However, no
intervening legislative changes regarding allocations of partnership
liabilities have been made, no subsequent changes to regulatory rules
concerning allocations of partnership liabilities address the issues in
the proposed regulations, and the issues raised by the commenters
continue to remain relevant. For these reasons, the Treasury Department
and the IRS have determined that a new notice of proposed rulemaking or
a further opportunity for public comment would be unlikely to generate
different comments. Furthermore, issuing the same rules again as a
notice of proposed rulemaking would unnecessarily delay further this
rulemaking to the continued detriment of taxpayers desiring to apply
these rules to allocate their partnership liabilities.
Accordingly, after full consideration of the comments received,
these final regulations adopt the proposed regulations with certain
modifications in response to the comments described in the Summary of
Comments and Explanation of Revisions.
Summary of Comments and Explanation of Revisions
I. Overlapping Economic Risk of Loss
Under existing Sec. 1.752-2(a), a partner's share of a recourse
partnership liability equals the portion of that liability, if any, for
which the partner or related person bears the EROL. The proposed
regulations would have provided a proportionality rule to determine how
partners share a partnership liability when multiple partners bear the
EROL for the same liability (overlapping EROL). Under the
proportionality rule, the EROL borne by a partner would be the amount
of the partnership liability (or portion thereof) multiplied by a
fraction obtained by dividing the amount of EROL borne by the partner
by the sum of the EROL borne by all partners with respect to that
liability.
One commenter suggested that the final regulations should not adopt
the proportionality rule but should instead allocate liabilities among
partners with overlapping EROL in a manner analogous to the manner in
which a nonrecourse liability is allocated under Sec. 1.752-3.
Specifically, the commenter suggested that such liabilities should be
allocated in a manner consistent with the partner's interest in
partnership profits. The commenter stated that this allocation approach
more closely reflects the partners' economic arrangements and permits
losses attributable to the liability to be allocated among the partners
without any of the losses being suspended under section 704(d) of the
Code.
Under the existing section 752 regulations, a recourse partnership
liability is shared among partners that bear the EROL for the
liability. Conversely, with a nonrecourse partnership liability, no
partner bears economic risk with respect to the liability; therefore,
the liability is generally allocated in accordance with a partner's
share of partnership profits. Adopting a framework applicable to a
nonrecourse partnership liability for purposes of determining how a
recourse partnership liability should be shared under section 752 could
cause the liability to be allocated disproportionally among those
partners depending upon their profit-sharing ratios even though the
partners bear the same amount of EROL for the liability. The
proportionality rule provides a reasonable approach in addressing how a
recourse partnership liability should be shared when partners have
overlapping EROL. Therefore, the final regulations do not adopt the
commenter's suggestion.
Another commenter requested clarification on the effect of local
law and separate agreements between partners in determining whether
partners have overlapping EROL. Under existing Sec. 1.752-2(b)(3), all
statutory and contractual obligations relating to a partnership
liability are taken into account for purposes of determining a
partner's EROL. Therefore, the proportionality rule applies to cases in
which partners have overlapping EROL after taking into account all
statutory and contractual obligations relating to the partnership
liability. The final regulations illustrate in Sec. 1.752-2(f)(9) that
these obligations are considered in determining whether the partners
have overlapping EROL.
II. Tiered Partnerships
Another overlapping EROL issue under section 752 relates to tiered
partnerships. The proposed regulations would have provided guidance on
how a lower-tier partnership (LTP) must allocate a liability in cases
in which a
[[Page 95110]]
partner of an upper-tier partnership (UTP) is also a partner of the LTP
and that partner bears the EROL with respect to the LTP's liability.
Under the proposed regulations, the LTP would be required to allocate
the liability directly to the partner.
One commenter, while acknowledging that the rule in the proposed
regulations provides certainty and is administrable, expressed concerns
that this rule could cause the partner in both the UTP and the LTP to
recognize gain. The commenter recommended that the final regulations
allow the LTP to allocate the liability in any reasonable manner
between the partner and the UTP. The final regulations do not adopt
this suggestion. The rule in the proposed regulations is the most
administrable, especially in a case in which an LTP may not be aware
that one of its partners is also a partner in a UTP that is removed
from the LTP. Therefore, under the final regulations, an LTP must
allocate the liability directly to the partner that bears the EROL with
respect to the LTP's liability. Section Sec. 1.752-2(i)(2) of the
final regulations also clarifies how the tiered partnership rule
applies in a case in which there is overlapping EROL among unrelated
partners as provided in Sec. 1.752-2(a)(2). Finally, the final
regulations add an example to illustrate the application of the
proportionality rule when there are tiered partnerships.
Another commenter suggested that a gap might exist between
Sec. Sec. 1.704-2 and 1.752-2 concerning partner nonrecourse
deductions when a partner of a UTP (that is not also a partner of an
LTP) bears the EROL for a liability of the LTP. Existing Sec. 1.704-
2(i) requires the partnership to allocate partner nonrecourse
deductions to the partner that bears the EROL. Existing Sec. 1.704-
2(k)(5) treats an LTP's liability that is treated as a UTP's liability
under Sec. 1.752-4(a) also as a liability of the UTP for purpose of
applying the rules under Sec. 1.704-2(i). Under existing Sec. 1.752-
2(i), the LTP allocates its liability to the UTP when a partner of the
UTP bears the EROL for the LTP's liability. The commenter asserted
that, although existing Sec. 1.752-2(i) requires the LTP to allocate
the liability to the UTP, existing Sec. 1.704-2 does not explicitly
direct the LTP to allocate partner nonrecourse deductions attributable
to that liability to the UTP. Thus, in the commenter's view, the
existing rules do not treat the UTP as bearing the EROL for the LTP's
liability for purposes of Sec. 1.704-2(i). Contrary to this
commenter's suggestion, existing Sec. Sec. 1.704-2(i) and 1.704-
2(k)(5) implicitly require an LTP to allocate partner nonrecourse
deductions attributable to a liability of the LTP to a UTP if a partner
in the UTP bears the EROL for the LTP's liability. To eliminate any
uncertainty, the final regulations add a sentence to Sec. 1.704-
2(k)(5) to clarify that a UTP is treated as bearing the EROL for an
LTP's liability that is treated as the UTP's liability under Sec.
1.752-4(a). Therefore, partner nonrecourse deductions attributable to
the LTP's liability are allocated to the UTP under Sec. 1.704-2(i).
III. General Issues of EROL
As previously stated, existing Sec. 1.752-2(a) generally provides
that a partner's share of a recourse partnership liability equals the
portion of that liability, if any, for which the partner or related
person bears the EROL. A partner bears the EROL for a partnership
liability if the partner or related person has a payment obligation
under Sec. 1.752-2(b), is a lender as provided in Sec. 1.752-2(c),
guarantees payment of interest on a partnership nonrecourse liability
as described in Sec. 1.752-2(e), or pledges property as a security as
provided in Sec. 1.752-2(h). In describing when a partner bears the
EROL for a partnership liability, the proposed regulations
inadvertently failed to include situations under Sec. 1.752-2(e) and
(h). A commenter also suggested that references to Sec. 1.752-2(c)
relating to when a partner or related person is the lender take into
account a de minimis rule under Sec. 1.752-2(d)(1). Existing Sec.
1.752-2(d)(1) provides that the general rule in Sec. 1.752-2(c)(1)
does not apply if a partner or related person whose interest (directly
or indirectly through one or more partnerships and including the
interest of any related person) in each item of partnership income,
gain, loss, deduction, or credit for every taxable year that the
partner is a partner in the partnership is 10 percent or less, makes a
loan to the partnership that constitutes qualified nonrecourse
financing within the meaning of section 465(b)(6) (determined without
regard to the type of activity financed). To incorporate the rules in
Sec. 1.752-2(d)(1), the commenter suggested that the final regulations
broadly refer to Sec. 1.752-2 when describing situations that give
rise to EROL instead of listing specific applicable paragraphs in Sec.
1.752-2.
The final regulations correct the oversight in the proposed
regulations by listing in one section of the regulations all the
situations under Sec. 1.752-2 in which a person directly bears the
EROL, including by taking into account the de minimis exceptions in
Sec. 1.752-2(d). A person directly bears the EROL if that person, and
not a related person, meets the requirements of the listed situations.
IV. Related Party Rules
A. Constructive Ownership Rules
Under existing Sec. 1.752-4(b)(1), a person is related to a
partner if the person and the partner bear a relationship to each other
that is specified in section 267(b) or section 707(b)(1) of the Code,
except that ``80 percent or more'' is substituted for ``more than 50
percent'' in each of those sections, a person's family is determined by
excluding siblings, and section 267(e)(1) and (f)(1)(A) are
disregarded. In determining whether a partner and a person bear a
relationship to each other that is specified in section 267(b) or
section 707(b)(1), the constructive stock ownership rules in section
267(c) apply. See sections 267(c) and 707(b)(3). The proposed
regulations would disregard the constructive stock ownership rules
under section 267(c)(1) in determining whether to treat stock of a
corporation owned, directly or indirectly, by or for a partnership as
owned proportionately by or for its partners if the corporation is a
lender under Sec. 1.752-2(c) or has a payment obligation with respect
to a liability of its partnership owner. The preamble to the proposed
regulations explained that a partner's EROL that is limited to the
partner's equity investment in the partnership should be treated
differently than the risk of loss beyond that investment.
Commenters agreed with the rationale underlying the proposed
regulations and suggested that the final regulations disregard two
other constructive ownership situations in determining relatedness
under Sec. 1.752-4(b)(1). First, commenters suggested that the final
regulations also disregard section 267(c)(1) in determining whether to
treat a UTP's direct or indirect interest in an LTP as owned
proportionately by or for the UTP's partners if the LTP is a lender or
has a payment obligation with respect to a liability of the UTP.
Commenters expressed the view that in this situation, like the one
described in the proposed regulations, a partner should not be treated
as bearing the EROL for a partnership liability merely as a result of
the UTP's investment in an LTP that has a payment obligation with
respect to a liability of the UTP.
Second, commenters suggested that the final regulations disregard
section 1563(e)(2) of the Code in determining relatedness under Sec.
1.752-4(b)(1). For purposes of Sec. 1.752-4(b)(1), a person is related
to a partner if the two parties bear a relationship to each other as
[[Page 95111]]
described in section 267(b)(3). Under section 267(b)(3), a corporate
partner and another corporation that are members of the same controlled
group (as defined in section 267(f)) are treated as related for
purposes of Sec. 1.752-4(b)(1). Section 267(f) gives ``controlled
group'' the same meaning as in section 1563(a). Under section 1563(a),
a controlled group of corporations includes a parent-subsidiary
controlled group and a brother-sister controlled group. Section 1563(e)
provides attribution rules that apply in determining whether a
corporation is a member of a parent-subsidiary controlled group or of a
brother-sister controlled group. Specific to partnerships, section
1563(e)(2) provides that stock owned, directly or indirectly, by or for
a partnership is considered as owned by any partner having an interest
of 5 percent or more in either the capital or profits of the
partnership in proportion to the partner's interest in capital or
profits, whichever is greater. Therefore, in applying the attribution
rules under section 1563(e)(2), a corporate partner in a partnership
could be treated as a member of a parent-subsidiary controlled group or
of a brother-sister controlled group, and thus, related to a
corporation in that group that is owned by the partnership. If the
corporate subsidiary of the partnership has a payment obligation with
respect to a liability of the partnership, the corporate partner is
treated as bearing the EROL for that liability. Commenters recommended
not treating the corporate partner as bearing the EROL merely as a
result of applying the attribution rules under section 1563(e)(2)
because the partner's risk is limited to the investment in the
partnership.
The final regulations adopt these suggestions. Thus, in determining
relatedness under Sec. 1.752-4(b)(1), the final regulations disregard:
(1) section 267(c)(1) in determining whether a UTP's interest in an LTP
is owned proportionately by or for the UTP's partners when an LTP
directly bears the EROL for a liability of the UTP and (2) section
1563(e)(2) in determining whether a corporate partner in a partnership
and a corporation owned by the partnership are members of the same
controlled group when the corporation directly bears the EROL for a
liability of the owner partnership. In both of these situations, a
partner should not be treated as bearing the EROL when the partner's
risk is limited to the partner's equity investment in the partnership.
B. Related Partner Exception to Related Party Rules
Under the proposed regulations, if a person who owns (directly or
indirectly through one or more partnerships) an interest in a
partnership is a lender or has a payment obligation with respect to a
partnership liability, or portion thereof, then other persons owning
interests directly or indirectly (through one or more partnerships) in
that partnership would not be treated as related to that person for
purposes of determining the EROL borne by each of them for the
partnership liability, or portion thereof (related partner exception).
One commenter recommended that the final regulations clarify the
meaning of the phrase ``not treated as related'' as used in proposed
examples illustrating the related partner exception. The phrase ``not
treated as related'' is intended to mean that, under Sec. 1.752-
4(b)(1), the partner and the other person are not treated as bearing a
relationship to each other that is specified in section 267(b) or
section 707(b)(1) (taking into account any applicable attribution
rules). Accordingly, the phrase ``not treated as related'' should be
broadly interpreted. For instance, in Sec. 1.752-4(b)(5)(iii) of the
final regulations, A wholly owns corporations X and Y. X and Y are
members of Partnership, an entity treated as a partnership for Federal
tax purposes. The partnership agreement provides that X and Y share
equally in all items of income, gain, loss, deduction, and credit of
Partnership. X owns 79 percent of Z, a corporation, and Y owns 21
percent of Z. Each of X and Z guarantees the entire amount of a
liability of Partnership. Under this example, X and Y are not treated
as related for purposes of determining the EROL borne by each of them
for the partnership's liability, and, because neither X nor Y owns an
80 percent or more interest in Z, X and Y are not treated as related to
Z under Sec. 1.752-4(b)(1). In other words, X and Y are not related to
Z within the meaning of Sec. 1.752-4(b)(1), which takes into account
any applicable attribution rules.
Another commenter suggested that the related partner exception
should apply only to turn off relatedness so that the direct EROL borne
by one partner is not attributed to another partner. This commenter
recommended that the rule should not turn off the relationship between
a partner that directly bears the EROL for a partnership liability and
another partner for purposes of determining whether those partners are
related to a non-partner that also bears EROL for the partnership's
liability. If the related partner exception did not apply in this
situation, both partners would be treated as bearing the EROL for the
partnership liability and share the liability under the proportionality
rule.
The proposed regulations would implement the result in IPO II v.
Commissioner, 122 T.C. 295 (2004), which applied the related partner
exception to turn off the relationship between the partners and
allocated the entirety of a partnership's liability to the partner that
directly bore the EROL for the partnership's liability despite a non-
partner related person also bearing the EROL. Therefore, the final
regulations do not adopt this suggestion.
C. Person Related to Multiple Partners (Multiple Partner Rule)
The proposed regulations provide that if a person is a lender or
has a payment obligation with respect to a partnership liability and is
related to more than one partner, then those partners that are related
to that person (related partners) share the liability equally. One
commenter suggested that the multiple partner rule may be unnecessary
and recommended that the final regulations only include the
proportionality rule in proposed Sec. 1.752-2(a) to address how to
allocate EROL when there is overlapping EROL, including because
multiple partners are related to a person with a payment obligation.
The final regulations do not adopt this suggestion. The multiple
partner rule is necessary because, without this rule, the partners
might share EROL incorrectly. For example, corporations X, Y, and Z are
partners in an entity treated as a partnership for Federal tax
purposes. The partnership agreement provides that the partners share
equally in all items of income, gain, loss, deduction, and credit of
XYZ partnership. A, an individual, wholly owns X and Y. Z is an
unrelated third party. Partnership borrows $1,000 from a bank and A and
Z both guarantee the entire amount of the liability. Without the
multiple partner rule, each of X and Y has $1,000 of EROL from A's
$1,000 guarantee and Z has $1,000 of EROL from its guarantee. Each
would be allocated one-third of the liability under the proportionality
rule. In contrast, by applying the multiple partner rule, each of X and
Y has $500 of EROL. When the proportionality rule is applied, X and Y
are each allocated one-fourth of the liability and Z is allocated one-
half of the liability. This is the correct result because there is one
guarantee from A's related group and one guarantee by Z.
The commenter also recommended that if the final regulations retain
the
[[Page 95112]]
multiple partner rule, the final regulations allow the related partners
to agree among themselves how to allocate the liability, provided that
the allocation is consistently applied. The commenter explained that
allowing related partners to choose among themselves who receives the
allocation could prevent related partners from recognizing an
uneconomic gain. To address the commenter's underlying concern, the
final regulations under Sec. 1.752-4(b)(3) treat related partners as
bearing the EROL for a partnership liability in proportion to each
related partner's interest in partnership profits.
V. Ordering Rule
The proposed regulations had different rules regarding allocations
of partnership liabilities for related and unrelated parties. In
particular, the proportionality rule in proposed Sec. 1.752-2(a)
addressed when partners have overlapping EROL, the related partner
exception in proposed Sec. 1.752-4(b)(2) described when partners with
direct EROL are not treated as related to other partners, and the
multiple partner rule in proposed Sec. 1.752-4(b)(3) provided how EROL
is shared when multiple partners are related to a person that is a
lender or has a payment obligation. One commenter expressed confusion
regarding how these rules interact and suggested that the final
regulations include an ordering rule.
The final regulations adopt this suggestion. An ordering rule is
warranted to clarify how the proportionality rule interacts with the
multiple partner rule and how the multiple partner rule interacts with
the related partner exception. Therefore, under Sec. 1.752-4(e), the
first step is to determine whether any partner (direct or indirect)
directly bears the EROL for the partnership liability and apply the
related partner exception in Sec. 1.752-4(b)(2). After applying the
related partner exception (if applicable), the next step is to
determine the amount of EROL each partner is considered to bear under
Sec. 1.752-4(b)(3) when multiple partners are related to a person that
directly bears the EROL for a partnership liability. The final step is
to apply the proportionality rule in Sec. 1.752-2(a)(2) to determine
the amount of EROL that each partner is considered to bear when the
amount of EROL that multiple partners bear exceed the amount of the
partnership liability. The final regulations include an example to
illustrate the ordering rule in Sec. 1.752-4(e).
VI. Liquidating Distributions of Partnership Interests
The preamble to the proposed regulations requested comments
concerning the proper treatment of liabilities when a UTP bears the
EROL for an LTP's liability and distributes, in a liquidating
distribution, its interest in the LTP to one of its partners, but the
transferee partner does not bear the EROL. As a result of this
transaction, the LTP's recourse liability became a nonrecourse
liability for purposes of section 752. The preamble requested comments
specifically on the timing of the liability reallocation relative to
the transaction that caused the liability to change from recourse to
nonrecourse.
The Treasury Department and the IRS received thoughtful comments
regarding this issue in response to the request for comments and are
continuing to consider whether additional guidance regarding the issue
is warranted.
VII. Applicability Date
Under the proposed regulations the rules would apply to any
liability incurred or assumed by a partnership on or after the date the
regulations are published as final regulations in the Federal Register.
Commenters suggested that the final regulations allow a taxpayer to
apply the final regulations to all liabilities incurred or assumed by a
partnership (even liabilities incurred or assumed before the date of
publication of these regulations), with respect to all returns,
including amended returns, filed after the date these regulations are
published. The final regulations adopt this suggestion, but clarify
that a partnership must apply these rules consistently to all of its
partnership liabilities and may not pick and choose which rules apply
to them. Allowing taxpayers to apply these regulations before the
publication date will provide greater certainty for partnerships and
their partners and allow uniform rules to apply to all partnership
liabilities. As a result, these final regulations allow a partnership
to apply the rules to all liabilities with respect to returns filed on
or after December 2, 2024, provided the partnership consistently
applies all the rules in these final regulations to those liabilities.
A commenter also suggested that the final regulations permit
partnership liabilities that are modified or refinanced and payment
obligations that are modified to continue to be subject to the
provisions of the regulations in effect prior to the applicability date
of the final regulations, but only to the extent of the amount and
duration of the pre-modification (or refinancing) liability or payment
obligation. The commenter identified Sec. 1.707-5(c) as a model for a
special refinancing rule. The commenter noted that without such a rule,
the applicability date in the proposed regulations might discourage
partnerships from refinancing debts or subject partners to unexpected
adverse results.
The final regulations adopt this suggestion. Accordingly, the final
regulations do not apply to refinanced debts to the extent of the
amount and duration of the pre-modification liability. Instead, the
rules in the regulations as in effect prior to December 2, 2024,
continue to apply to those liabilities. For example, assume a
partnership borrowed $1,000 on January 28, 2024, from Bank, and X, a
person related to Partners A and B, guaranteed the entire amount of
that liability. Further assume that this liability was refinanced after
December 2, 2024 so that the liability is now $2,000 and X continues to
guarantee the entire amount of the liability. The rules in effect prior
to December 2, 2024 would continue to apply to the $1,000 of pre-
modification liability and X's guarantee of the $1,000 when determining
which partner bears the EROL. The rules in effect after December 2,
2024 would apply to the remaining $1,000.
Special Analyses
I. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) (PRA)
generally requires that a Federal agency obtain the approval of the
Office of Management and Budget before collecting information from the
public, whether such collection of information is mandatory, voluntary,
or required to obtain or retain a benefit. These regulations do not
impose a collection of information and, therefore, the PRA does not
apply.
II. Regulatory Flexibility Act
The Treasury Department and the IRS have determined the rule will
not have a significant economic impact on a substantial number of small
entities. Although the rules affect small entities, data is not readily
available about the number of taxpayers affected. Section 752 affects
the allocation of partnership liabilities among partners in a
partnership. The economic impact of these regulations is not likely to
be significant, because the regulations will make it easier for
taxpayers to comply with section 752. Pursuant to the Regulatory
Flexibility Act (5 U.S.C. chapter 6), the Secretary hereby certifies
that these regulations will not have a
[[Page 95113]]
significant economic impact on a substantial number of small entities.
Pursuant to section 7805(f) of the Code, the proposed regulations
that preceded these final regulations were submitted to the Chief
Counsel for the Office of Advocacy of the Small Business Administration
(SBA) for comment on its impact on small business. The Chief Counsel
for the Office of Advocacy of the SBA did not provide any comments on
the proposed regulations.
III. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates Reform Act of 1995 requires
that agencies assess anticipated costs and benefits and take certain
other actions before issuing a final rule that includes any Federal
mandate that may result in expenditures in any one year by a State,
local, or Tribal government, in the aggregate, or by the private
sector, of $100 million in 1995 dollars, updated annually for
inflation. This rule does not include any Federal mandate that may
result in expenditures by State, local, or Tribal governments, or by
the private sector in excess of that threshold.
IV. Executive Order 13132: Federalism
Executive Order 13132 (Federalism) prohibits an agency from
publishing any rule that has federalism implications if the rule either
imposes substantial, direct compliance costs on State and local
governments, and is not required by statute, or preempts State law,
unless the agency meets the consultation and funding requirements of
section 6 of the Executive order. These final regulations do not have
federalism implications and do not impose substantial direct compliance
costs on state and local governments or preempt State law within the
meaning of the Executive order.
V. Regulatory Planning and Review
Pursuant to the Memorandum of Agreement, Review of Treasury
Regulations under Executive Order 12866 (June 9, 2023), tax regulatory
actions issued by the IRS are not subject to the requirements of
section 6 of Executive Order 12866, as amended. Therefore, a regulatory
impact assessment is not required.
VI. Congressional Review Act
Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq.),
the Office of Information and Regulatory Affairs has designated this
rule as not a ``major rule,'' as defined by 5 U.S.C. 804(2).
Statement of Availability of IRS Documents
Guidance cited in this preamble is published in the Internal
Revenue Bulletin and is available from the Superintendent of Documents,
U.S. Government Publishing Office, Washington, DC 20402, or by visiting
the IRS website at <a href="https://www.irs.gov">https://www.irs.gov</a>.
Drafting Information
The principal author of these regulations is Caroline E. Hay,
Office of the Associate Chief Counsel (Passthroughs and Special
Industries). However, other personnel from the Treasury Department and
the IRS participated in their development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR part 1 is amended as follows:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
0
Par. 2. Section 1.704-2 is amended by:
0
1. Adding a sentence after the first sentence of paragraph (k)(5).
0
2. Adding paragraph (l)(1)(vi).
The additions read as follows:
Sec. 1.704-2 Allocations attributable to nonrecourse liabilities.
* * * * *
(k) * * *
(5) * * * In addition, for purposes of applying paragraph (i) of
this section, the upper-tier partnership is treated as bearing the
economic risk of loss for the lower-tier partnership's liabilities that
are treated as the upper-tier partnership's liabilities under Sec.
1.752-4(a). * * *
(l) * * *
(1) * * *
(vi) The second sentence of paragraph (k)(5) of this section
applies on or after December 2, 2024.
* * * * *
0
Par. 3. Section 1.752-0 is amended by:
0
1. In Sec. 1.752-2:
0
i. Revising the entry (a); and
0
ii. Adding entries (a)(1) through (3) and (i)(1) through (3).
0
2. In Sec. 1.752-4:
0
i. Revising the entry (b)(2);
0
ii. Removing the entries (b)(2)(i) though (iii);
0
iii. Redesignating the entries (b)(2)(iv), (b)(2)(iv)(A) and (B) as
(b)(4), (b)(4)(i) and (ii), respectively;
0
iv. Removing the entry (b)(2)(iv)(C); and
0
v. Adding the entries (b)(3) and (5), (e), and (f).
The revisions and additions read as follows:
1.752-0 Table of contents.
* * * * *
Sec. 1.752-2 Partner's share of recourse liabilities.
(a) Partner's share of recourse liabilities.
(1) In general.
(2) Overlapping economic risk of loss.
(3) Direct economic risk of loss.
* * * * *
(i) * * *
(1) In general.
(2) Coordination with overlapping economic risk of loss.
(3) Example.
* * * * *
Sec. 1.752-4 Special rules.
* * * * *
(b) * * *
(2) Related partner exception.
(3) Person related to more than one partner.
* * * * *
(5) Examples.
* * * * *
(e) Ordering rule.
(f) Example.
* * * * *
0
Par. 4. Section 1.752-2 is amended by:
0
1. Revising paragraphs (a).
0
2. Revising the headings for paragraphs (f)(1) through (8).
0
3. Revising paragraphs (f)(9), and (i).
0
4. In the first sentence of paragraph (l)(1), removing the language
``Paragraphs (a)'' and adding the language ``Paragraphs (a)(1)'' in its
place.
0
5. In the first sentence of paragraph (l)(3), removing the language
``Sec. 1.752-2(a)'' and adding ``Sec. 1.752-2(a)(1)'' in its place.
0
6. Adding paragraph (l)(4).
The revisions and addition read as follows:
Sec. 1.752-2 Partner's share of recourse liabilities.
(a) Partner's share of recourse liabilities--(1) In general. A
partner's share of recourse partnership liability equals the portion of
that liability, if any, for which the partner or related person bears
the economic risk of loss. The determination of the extent to which a
partner bears the economic risk of loss for a partnership liability is
made under the rules in paragraphs (b) through (k) of this section.
(2) Overlapping economic risk of loss. For purposes of determining
a partner's
[[Page 95114]]
share of a recourse partnership liability, the amount of the
partnership liability is taken into account only once. If the aggregate
amount of the economic risk of loss that all partners are determined to
bear for a partnership liability (or portion thereof) under paragraph
(a)(1) of this section (without regard to this paragraph (a)(2))
exceeds the amount of such liability (or portion thereof), then the
economic risk of loss borne by each partner for such liability equals
the amount determined by multiplying--
(i) The amount of such liability (or portion thereof) by
(ii) The fraction obtained by dividing the amount of the economic
risk of loss that such partner is determined to bear for that liability
(or portion thereof) under paragraph (a)(1) of this section, by the sum
of such amounts for all partners.
(3) Direct economic risk of loss. For purposes of this section and
Sec. 1.752-4, a person directly bears the economic risk of loss for a
partnership liability if that person has a payment obligation under
paragraph (b) of this section (except as provided in paragraph (d)(2)
of this section for certain partner guarantees), is a lender as
provided in paragraph (c) of this section (except as provided in
paragraph (d)(1) of this section for certain partner loans), guarantees
payment of interest on a partnership nonrecourse liability as described
in paragraph (e) of this section, or pledges property as a security as
provided in paragraph (h) of this section.
* * * * *
(f) * * *
(1) Example 1. Determining when a partner bears the economic risk
of loss. * * *
(2) Example 2. Recourse liability; deficit restoration obligation.
* * *
(3) Example 3. Guarantee by limited partner; partner deemed to
satisfy obligation. * * *
(4) Example 4. Partner guarantee with right of subrogation. * * *
(5) Example 5. Bifurcation of partnership liability; guarantee of
part of nonrecourse liability. * * *
(6) Example 6. Wrapped debt. * * *
(7) Example 7. Guarantee of interest by partner treated as part
recourse and part nonrecourse. * * *
(8) Example 8. Continent obligation not recognized. * * *
(9) Example 9. Overlapping economic risk of loss. (i) A and B are
unrelated equal members of limited liability company, AB. AB is treated
as a partnership for Federal tax purposes. AB borrows $1,000 from Bank.
A guarantees payment for the entire amount of AB's $1,000 liability and
B guarantees payment of up to $500 of the liability, if any amount of
the full $1,000 liability is not recovered by Bank. Under paragraph
(b)(1) of this section, A bears $1,000 of economic risk of loss for
AB's liability and B bears $500 of economic risk of loss for AB's
liability. A and B have not entered into a loss-sharing agreement
addressing their status as co-guarantors, and local law does not
clearly establish responsibility as between them for the liability.
(ii) Because the aggregate amount of A's and B's economic risk of
loss under paragraph (a)(1) of this section ($1,500) exceeds the amount
of AB's liability ($1,000), the economic risk of loss borne by each of
A and B is determined under paragraph (a)(2) of this section. Under
paragraph (a)(2) of this section, A's economic risk of loss equals
$1,000 multiplied by $1,000/$1,500, or $667, and B's economic risk of
loss equals $1,000 multiplied by $500/$1,500, or $333.
* * * * *
(i) Treatment of recourse liabilities in tiered partnerships--(1)
In general. If a partnership (upper-tier partnership) owns (directly or
indirectly through one or more partnerships) an interest in another
partnership (lower-tier partnership), the liabilities of the lower-tier
partnership are allocated to the upper-tier partnership in an amount
equal to the sum of the following--
(i) The amount of liabilities with respect to which the upper-tier
partnership directly bears the economic risk of loss as described in
paragraph (a)(3) of this section; and
(ii) The amount of any other liabilities with respect to which a
partner of the upper-tier partnership bears the economic risk of loss,
provided the partner is not also a partner in the lower-tier
partnership.
(2) Coordination with overlapping economic risk of loss. A lower-
tier partnership takes into account paragraph (a)(2) of this section
prior to the application of this paragraph (i).
(3) Example. (i) A and B (which is unrelated to A) contribute
$810,000 and $90,000 to UTP, a limited liability company treated as a
partnership for Federal tax purposes, in exchange for a 90 percent and
10 percent interest in UTP, respectively. UTP contributes the $900,000
to LTP, a partnership for Federal tax purposes, in exchange for a 90
percent interest in LTP and A contributes $100,000 directly to LTP in
exchange for a 10 percent interest in LTP. UTP and LTP both reported
losses in their initial years that reduced the partners' bases in UTP
and LTP to zero. LTP borrows $10 million. UTP and LTP both had no
income in the year at issue. At the request of the lender, A and B both
provide their personal guaranty for the entire amount of LTP's
liability.
(ii) Under paragraph (b)(1) of this section, A has $10 million of
economic risk of loss for LTP's liability and B has $10 million of
economic risk of loss for LTP's liability. Under paragraph (i)(2) of
this section, LTP takes into account paragraph (a)(2) of this section
prior to determining the amount of liabilities allocated to UTP under
paragraph (i)(1) of this section. Under paragraph (a)(2) of this
section, A is considered to bear $5 million (($10 million/$20 million)
x $10 million) of economic risk of loss and B is considered to also
bear $5 million (($10 million/$20 million) x $10 million) of economic
risk of loss for LTP's liability. Pursuant to paragraph (a)(1) of this
section, LTP allocates $5 million to A for A's direct interest in LTP's
liability. Under paragraph (i)(1) of this section, LTP allocates $5
million to UTP ($5 million attributable to B's economic risk of loss
for LTP's liability).
(iii) Pursuant to Sec. 1.752-4(a), UTP treats its share of LTP's
liability ($5 million) as a liability of UTP. Because A bears the
economic risk of loss for LTP's liability and is a partner in LTP,
under paragraph (i)(1)(ii) of this section, UTP's share of LTP's
liability ($5 million) only includes the amount of LTP's liabilities
with respect to which B bears the economic risk of loss. Therefore,
under paragraph (a)(1) of this section, UTP allocates $5 million of
UTP's share of LTP's liability to B and none to A.
* * * * *
(l) * * *
(4) Paragraphs (a)(2) and (3), (f)(9), and (i) of this section
apply to liabilities incurred or assumed by a partnership on or after
December 2, 2024, other than liabilities incurred or assumed by a
partnership pursuant to a written binding contract in effect prior to
that date. To the extent that the proceeds of a partnership liability
(refinancing debt) are allocable under the rules of Sec. 1.163-8T to
payments discharging all or part of any other liability (pre-
modification liability) of that partnership, the refinancing debt will
be treated as though it was incurred or assumed by the partnership
prior to December 2, 2024, to the extent of the amount and duration of
the pre-modification liability. A partnership may apply paragraphs
(a)(2) and (3), (f)(9), and (i) of this section to all of its
liabilities (including liabilities incurred or assumed by a partnership
prior to December 2, 2024), for any return filed
[[Page 95115]]
on or after December 2, 2024 provided the partnership consistently
applies all the rules in paragraphs (a)(2) and (3), (f)(9), and (i) of
this section and Sec. 1.752-4(b)(1)(iv) and (v), (b)(2) and (3),
(b)(5)(i) through (iv), (e), and (f) to those liabilities.
0
Par. 5. Section 1.752-4 is amended by:
0
1. In paragraph (b)(1)(i), removing the language ``sections;'' and
adding the language ``sections.'' in its place.
0
2. In paragraph (b)(1)(ii), removing the language ``sisters; and'' and
adding the language ``sisters.'' in its place.
0
3. Adding paragraphs (b)(1)(iv) and (v).
0
4. Revising paragraph (b)(2).
0
5. Adding paragraphs (b)(3) through (5), (e), and (f).
The additions and revision read as follows:
Sec. 1.752-4 Special rules.
* * * * *
(b) * * *
(1) * * *
(iv) Disregard section 267(c)(1) in determining whether--
(A) Stock of a corporation owned, directly or indirectly, by or for
a partnership is considered as being owned proportionately by or for
its partners when the corporation directly bears the economic risk of
loss as described in Sec. 1.752-2(a)(3) for a liability of the
partnership; and
(B) A capital interest or a profits interest in a partnership
(lower-tier partnership) owned, directly or indirectly, by or for a
partnership (upper-tier partnership) is considered as being owned
proportionately by or for the upper-tier partnership's partners when
the lower-tier partnership directly bears the economic risk of loss as
described in Sec. 1.752-2(a)(3) for a liability of the upper-tier
partnership.
(v) Disregard section 1563(e)(2) in determining whether a corporate
partner and a corporation are members of the same controlled group (as
defined in section 267(f)) under section 267(b)(3) when the corporation
directly bears the economic risk of loss as described in Sec. 1.752-
2(a)(3) for a liability of the partnership.
(2) Related partner exception. Notwithstanding paragraph (b)(1) of
this section (which defines related person), if a person who owns
(directly or indirectly through one or more partnerships) an interest
in a partnership directly bears the economic risk of loss as described
in Sec. 1.752-2(a)(3) for a partnership liability, or portion thereof,
then other persons owning interests directly or indirectly (through one
or more partnerships) in that partnership are not treated as related to
that person for purposes of determining the economic risk of loss borne
by each of them for such partnership liability, or portion thereof.
This paragraph (b)(2) does not apply when determining a partner's
interest under the de minimis rules in Sec. 1.752-2(d) and (e).
(3) Person related to more than one partner. For purposes of
determining a partner's economic risk of loss for a partnership
liability, or a portion thereof, when a person who directly bears the
economic risk of loss as described in Sec. 1.752-2(a)(3) for the
partnership liability is related to more than one partner under
paragraph (b)(1) of this section, each partner that is related to such
person is considered to bear the economic risk of loss for the
partnership liability, or portion thereof, in proportion to the
partner's interest in partnership profits.
(4) Special rule where entity structured to avoid related person
status--(i) In general. If--
(A) A partnership liability is owed to or guaranteed by another
entity that is a partnership, an S corporation, a C corporation, or a
trust;
(B) A partner or related person owns (directly or indirectly) a 20
percent or more ownership interest in the other entity; and
(C) A principal purpose of having the other entity act as a lender
or guarantor of the liability was to avoid the determination that the
partner that owns the interest bears the economic risk of loss for
federal income tax purposes for all or part of the liability; then the
partner is treated as holding the other entity's interest as a creditor
or guarantor to the extent of the partner's or related person's
ownership interest in the entity.
(ii) Ownership interest. For purposes of paragraph (b)(4)(i) of
this section, a person's ownership interest in--
(A) A partnership equals the partner's highest percentage interest
in any item of partnership loss or deduction for any taxable year;
(B) An S corporation equals the percentage of the outstanding stock
in the S corporation owned by the shareholder;
(C) A C corporation equals the percentage of the fair market value
of the issued and outstanding stock owned by the shareholder; and
(D) A trust equals the percentage of the actuarial interests owned
by the beneficial owner of the trust.
(5) Examples. The following examples illustrate the principles of
paragraph (b) of this section.
(i) Example 1: Person related to more than one partner. A, an
individual, owns 100 percent of X, a corporation. X owns 100 percent of
Y, a corporation. A owns a 40 percent capital and profits interest and
X owns a 60 percent capital and profits interest in P, a limited
liability company treated as a partnership for Federal tax purposes. P
borrows $1,000 from Bank. Y guarantees payment of the entire $1,000
debt owed to Bank. A and X do not directly bear the economic risk of
loss as described in Sec. 1.752-2(a)(3) for the liability. Therefore,
paragraph (b)(2) of this section does not apply for purposes of
determining the economic risk of loss borne by A and X. Under paragraph
(b)(1) of this section, Y is related to A and X. Therefore, under
paragraph (b)(3) of this section, A bears the economic risk of loss of
$400 and X bears the economic risk of loss of $600 for the $1,000
liability.
(ii) Example 2: Related partner exception. A, an individual, owns
100 percent of two corporations, X and Y. A and Y are members of P, a
limited liability company treated as a partnership for Federal tax
purposes. P borrows $1,000 from Bank. Each of A and X guarantees
payment of the entire $1,000 debt owed to Bank. A and Y are not treated
as related to each other pursuant to paragraph (b)(2) of this section
because A directly bears the economic risk of loss as described in
Sec. 1.752-2(a)(3) for the $1,000 liability. Y is therefore not
treated as related to X. Because A is the only partner that bears the
economic risk of loss for P's $1,000 liability, A's share of the
liability is $1,000 under Sec. 1.752-2(a)(1).
(iii) Example 3: Related partner exception. A, an individual, owns
100 percent of two corporations, X and Y. X owns 79 percent of a
corporation, Z, and Y owns the remaining 21 percent of Z. X and Y are
members of P, a limited liability company treated as a partnership for
Federal tax purposes. The partnership agreement provides that X and Y
share equally in all items of income, gain, loss, deduction, and credit
of P. P borrows $2,000 from Bank. Each of X and Z guarantees payment of
the entire $2,000 debt owed to Bank. X directly bears the economic risk
of loss as described in Sec. 1.752-2(a)(3) for P's $2,000 liability;
therefore, paragraph (b)(2) of this section applies and X and Y are not
treated as related for purposes of determining the economic risk of
loss borne by each of them for P's $2,000 liability. Because X and Y
are not treated as related and neither owns an 80 percent or more
interest in Z, neither X nor Y is treated as related to Z under
paragraph (b)(1) of this section. Because
[[Page 95116]]
X bears the economic risk of loss for P's $2,000 liability, X's share
of the liability is $2,000 under Sec. 1.752-2(a)(1).
(iv) Example 4: Related partner exception and person related to
more than one partner. Same facts as in paragraph (b)(5)(iii) of this
section (Example 3), but X guarantees payment of up to $1,200 of the
debt owed to Bank if any amount of the full $2,000 is not recovered by
Bank and Z guarantees payment of $2,000. Pursuant to paragraph (b)(2)
of this section, X and Y are not treated as related to the extent of
X's $1,200 guarantee because X directly bears the economic risk of loss
as described in Sec. 1.752-2(a)(3) for $1,200 of P's $2,000 liability.
X's share of the liability is $1,200 under Sec. 1.752-2(a)(1). In
addition, because paragraph (b)(2) of this section does not apply to
the remaining portion of the liability that X did not guarantee, X and
Y are treated as related for purposes of the remaining $800 of the
liability pursuant to paragraph (b)(1) of this section. Therefore, Z is
treated as related to X and Y under paragraph (b)(1) of this section.
Pursuant to paragraph (b)(3) of this section, because X and Y each has
a 50 percent interest in all items of income, gain, loss, deduction,
and credit of P, X and Y each bear the economic risk of loss for $400
of the remaining $800 liability, and thus each has a $400 share of the
liability under Sec. 1.752-2(a)(1). In sum, X's share of P's $2,000
liability is $1,600 ($1,200 plus $400) and Y's share of P's $2,000
liability is $400.
(v) Example 5: Entity structured to avoid related person status. A,
B, and C form a general partnership, ABC. A, B, and C are equal
partners, each contributing $1,000 to the partnership. A and B want to
loan money to ABC and have the loan treated as nonrecourse for purposes
of section 752. A and B form partnership AB to which each contributes
$50,000. A and B share losses equally in partnership AB. Partnership AB
loans partnership ABC $100,000 on a nonrecourse basis secured by the
property ABC buys with the loan. Under these facts and circumstances, A
and B bear the economic risk of loss with respect to the partnership
liability equally based on their percentage interest in losses of
partnership AB.
* * * * *
(e) Ordering rule. In determining a partner's share of a recourse
partnership liability, the rules in paragraph (b)(2) of this section,
if applicable, apply before the rules in paragraph (b)(3) of this
section. The rules in paragraph (b)(3) of this section apply before the
rules in Sec. 1.752-2(a)(2).
(f) Example. The following example illustrates the application of
paragraph (e) of this section.
(1) Facts. A, an individual, owns 100 percent of two corporations,
X and Y. X, Y, and Z, a corporation, are members of P, a limited
liability company treated as a partnership for Federal tax purposes.
The partnership agreement provides that the partners share equally in
all items of income, gain, loss, deduction, and credit of P. Z is not
related to A, X, or Y. P borrows $1,000 from Bank. Each of A, X, and Z
guarantees payment for the entire amount of P's $1,000 liability. Each
of A, X, and Z has a payment obligation of $1,000 under Sec. 1.752-
2(b) for P's $1,000 liability.
(2) Analysis. (i) Under paragraph (e) of this section, first apply
the rules under paragraph (b)(2) of this section, then apply the rules
under paragraph (b)(3) of this section, and finally apply the rules
under Sec. 1.752-2(a)(2) to determine how to allocate P's $1,000
liability among X, Y, and Z under Sec. 1.752-2(a)(1). Under paragraph
(b)(2) of this section, X and Y are not treated as related to each
other with respect to X's payment obligation for the $1,000 liability
because X directly bears the economic risk of loss as described in
Sec. 1.752-2(a)(3). Therefore, X is treated as bearing $1,000 of the
economic risk of loss for P's liability.
(ii) Because the rules in paragraph (b)(2) of this section do not
affect A's relationship to X and Y, X and Y are related to A under
paragraph (b)(1) of this section. Because A is related to both X and Y,
each of X and Y is considered to bear the economic risk of loss for P's
liability in proportion to X's and Y's interest in P. Because they both
have a one-third interest in all items of income, gain, loss,
deduction, and credit of P, each of X and Y bears $500 of economic risk
of loss under paragraph (b)(3) of this section with respect to A's
$1,000 payment obligation for P's liability.
(iii) Z has a payment obligation with respect to the $1,000
liability under Sec. 1.752-2(b)(1) and thus, bears $1,000 of the
economic risk of loss for P's liability.
(iv) After applying paragraphs (b)(2) and (3) of this section, X is
considered to bear $1,500 of the economic risk of loss for P's
liability and Y is considered to bear $500 of the economic risk of loss
for P's liability. Z is considered to bear $1,000 of the economic risk
of loss for P's liability. Because the aggregate amount of X's, Y's,
and Z's economic risk of loss ($3,000) exceeds the amount of P's
liability ($1,000), the economic risk of loss borne by X, Y, and Z is
determined under Sec. 1.752-2(a)(2). Under Sec. 1.752-2(a)(2), X's
economic risk of loss is $500 (($1,500/$3,000) x $1,000), Y's economic
risk of loss is $167 (($500/$3,000) x $1,000), and Z's economic risk of
loss is $333 (($1,000/$3,000) x $1,000). Therefore, under Sec. 1.752-
2(a)(1), X's share of P's liability is $500, Y's share is $167, and Z's
share is $333.
0
Par. 6. Section 1.752-5 is amended by:
0
1. Revising the section heading.
0
2. Adding three sentences after the first sentence in paragraph (a).
0
3. In paragraph (a), removing the word ``However'' at the beginning of
the fifth sentence and adding ``In addition'' in its place.
The revision and additions read as follows:
Sec. 1.752-5 Applicability dates and transition rules.
(a) * * * However, Sec. 1.752-4(b)(1)(iv) and (v), (b)(2) and (3),
(b)(5)(i) through (iv), (e), and (f) apply to any liability incurred or
assumed by a partnership on or after December 2, 2024, other than a
liability incurred or assumed by a partnership pursuant to a written
binding contract in effect prior to that date. To the extent that the
proceeds of a partnership liability (refinancing debt) are allocable
under the rules of Sec. 1.163-8T to payments discharging all or part
of any other liability (pre-modification liability) of that
partnership, the refinancing debt will be treated as though it was
incurred or assumed by the partnership prior to December 2, 2024, to
the extent of the amount and duration of the pre-modification
liability. A partnership may apply Sec. 1.752-4(b)(1)(iv) and (v),
(b)(2) and (3), (b)(5)(i) through (iv), (e), and (f) to all of its
liabilities (including liabilities incurred or assumed by a partnership
prior to December 2, 2024), for any return filed on or after December
2, 2024 provided the partnership consistently applies all the rules in
Sec. 1.752-2(a)(2) and (3), (f)(9), and (i) and Sec. 1.752-
4(b)(1)(iv) and (v), (b)(2) and (3), (b)(5)(i) through (iv), (e), and
(f) to those liabilities. * * *
* * * * *
Douglas W. O'Donnell,
Deputy Commissioner.
Approved: October 30, 2024.
Aviva R. Aron-Dine,
Deputy Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2024-27840 Filed 11-29-24; 8:45 am]
BILLING CODE 4830-01-P
</pre></body>
</html>Indexed from Federal Register on December 2, 2024.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.