Tax News

CCH (cch.taxgroup.com) reports:

  The IRS has requested comments of the proper application of rules governing the creation and maintenance of multiple layers of forward and reverse Code Sec. 704(c) gain and loss to partnerships and tiered partnerships, including in the context of partnership mergers and divisions. The IRS had received numerous comments on proposed regulations issued in 2007 concerning the tax consequences of certain partnership mergers (NPRM REG-143397-05).

  CCH Comment.
Code Sec. 704(c) is intended to prevent the shifting among partners of the precontribution gain attributable to property contributed to a partnership.

  Also, the IRS is aware of practitioners taking different positions based on varying interpretations of Reg. §1.704-3(a)(9). For example, some practitioners have taken the aggregate approach, so that a tiered partnership can be looked though and Code Sec. 704(c) applied as if the partners of the upper tier partnership directly own a portion of the assets of the lower tier partnership. In contrast, under the entity approach favored by some practitioners, the upper tier partnership is treated as owning an interest in the lower tier partnership but is not treated as owning any interest in the property of the lower tier partnership.

  The IRS is asking for comments to clarify the issues raised by the different approaches. The questions relate to issues raised by the revaluation of assets, how tax items should be allocated among the different
Code Sec. 704(c) "layers", how layers should be maintained in a tiered-partnership structure, issues related to mergers and divisions, and international issues.

Notice 2009-70, 2009FED ¶46,445

Other References:

 
Code Sec. 704(c)

  CCH Reference - 2009FED ¶25,135.32

  Tax Research Consultant

  CCH Reference - TRC PART: 9,150