IRS Replaces Proposed Regulations on Disguised Sale Rules and Allocation of Partnership Liabilities: The Proposed Regulations, if Adopted, Would Reverse Prior Temporary and Proposed Regulations, but Bottom-Dollar Guarantees Would Continue to not be Recognized

Sullivan & Cromwell LLP - June 19, 2018

Yesterday, the Treasury Department and the Internal Revenue Service issued proposed regulations (the “New Proposed Regulations”) that would reinstate certain prior rules regarding partnership disguised sales and allocation of partnership liabilities. The New Proposed Regulations would no longer effectively treat all partnership liabilities as nonrecourse liabilities for disguised sale purposes. However, the New Proposed Regulations would retain prior regulations that do not recognize “non-commercial” guarantees and similar arrangements (including so-called “bottom-dollar” guarantees).