Daily Tax Update - June 15, 2012: IRS Provides Safe Harbor for Publicly Traded Partnership Qualifying Income

IRS RELEASES REVENUE PROCEDURE PROVIDING COD SAFE HARBOR TO PUBLICLY TRADED PARTNERSHIPS:  Today, the Service issued Revenue Procedure 2012-28, granting a safe harbor under which the Service will not contest a determination by a publicly traded partnership (PTP) that income from discharge of indebtedness (COD income) is qualifying income under section 7704(d).

  • Rev. Proc. 2012-28 provides that the Service will not challenge a PTP's determination that COD income is qualifying income under section 7704(d) so long as the COD income results from debt incurred in direct connection with activities of the PTP that produce qualifying income.  The PTP may show that COD income is attributable to debt incurred in direct connection with the PTP’s qualifying activities by any reasonable method.
    • The guidance explains that one reasonable method for demonstrating that COD income is attributable to debt incurred in direct connection with the PTP's qualifying activities is to trace the proceeds of the COD income-producing debt to qualifying activities.  This approach is similar to the one described in Treas. Reg. 1.163-8T.
    • Conversely, a method that allocates COD income based solely on the ratio of qualifying gross income to total gross income will typically not be considered reasonable.
    • The Service may consider a request for a private letter ruling on whether a method is reasonable.
  • Rev. Proc. 2012-28 is effective for COD income of a PTP traceable to debt discharged on or after June 15, 2012.  In addition, PTPs may apply this guidance for COD income attributable to debt discharged in any taxable year for which the statute of limitations has not expired.
  • For additional information, contact - Aaron P. Nocjaranocjar@steptoe.com
  • The revenue procedure can be accessed here.

MISCELLANEOUS GUIDANCE RELEASED:

Rules:

Portability of a Deceased Spousal Unused Exclusion Amount

Proposed Rules:

Financial Asset Securitization Investment Trusts

Portability of a Deceased Spousal Unused Exclusion Amount

Property Transferred in Connection with Performance of Services under Section 83

INTERNAL REVENUE SERVICE - CIRCULAR 230 DISCLOSURE:
As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing, or recommending to another party any plan or arrangement addressed herein.

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