Daily Tax Update - June 11, 2015: Treasury, IRS Issue Final, Temporary, and Proposed Regulations on Partnership Transactions Involving Equity Interests

Treasury, IRS Issue Final, Temporary, and Proposed Regulations on Partnership Transactions Involving Equity Interests of a Partner:  Today, Treasury and the IRS issued final and temporary regulations (TD 9722) preventing a corporate partner from avoiding corporate-level gain through transactions with a partnership involving equity interests of the partner.  The text of the temporary regulations serves as the text of concurrently issued proposed regulations (REG-149518-03). 

According to the preamble to the final and temporary regulations, the “purpose of these regulations authorized under section 337(d) is to prevent corporate taxpayers from using a partnership to circumvent gain required to be recognized under section 311(b) or section 336(a).”  The regulations apply when a partnership, either directly or indirectly, owns, acquires, or distributes stock of the corporate partner.  Under these regulations, a corporate partner may recognize gain when it is treated as acquiring or increasing its interest in stock of the corporate partner held by a partnership in exchange for appreciated property in a manner that avoids gain recognition under section 311(b) or section 336(a).  These regulations also retain, with some modifications, the deemed redemption rule imposed under the now-withdrawn 1992 proposed regulations.

The final and temporary regulations are effective June 12.  Comments on the proposed regulations are due by September 10.

Treasury, IRS Issue Proposed Regulations on the Aggregation of Basis for Partnership Distributions Involving Equity Interests of a Partner:  Today, Treasury and the IRS issued proposed regulations (REG-138759-14) which would allow consolidated group members that are partners in the same partnership to aggregate their bases in stock distributed by the partnership for the purpose of limiting the application of rules that might otherwise cause basis reduction or gain recognition.  In addition, the proposed regulations would require certain corporations that engage in gain elimination transactions to reduce the basis of corporate assets or to recognize gain.  Comments and requests for a public hearing are due by September 10.

IRS, Industry, States Announce Collaborative Effort to Combat Identity Theft:  Today, the IRS announced that it has joined with representatives of tax preparation and software firms, payroll and tax financial product processors, and state tax administrators to combat identity theft refund fraud and protect the nation’s taxpayers.  The agreement identifies new steps to validate taxpayer and tax return information at the time of filing.