Andy Immerman presented this teleconference program sponsored by Strafford. This program provided tax advisors with a review of the key tax ramifications involved with transactions between partners and partnerships under Sect. 707 of the Internal Revenue Code.
Section 707 raises some of the most vexing issues that advisors will face anywhere in the Internal Revenue Code. Its role is to prevent tax-abusive transactions involving property transfers, sales or exchanges; performance of services; and guaranteed payments between a partner and the partnership.
However, the relationship between a partner and partnership can be ambiguous, and lines can blur between acting in a partner's role and as an unrelated party. What sorts of transactions will run afoul of disguised sale rules under Sect. 704(a)(2)(B), triggering a federal tax bill?
Advisors must stay abreast of evolving material terms, nuances and implications of Sect. 707 and agency guidance and court rulings, such as Canal Corp., which declared a leveraged partnership transaction a taxable asset sale and the taxpayer responsible for an accuracy related penalty.
This presentation provided a thorough briefing on the current Sect. 707 regs, guidance and IRS audit policy. The following topics were covered during the presentation.
I.Important provisions of Sect. 707
A.Sect. 707(a)(2)(A) on partner performance of services
B.Sect. 707(a)(2)(B) on partner transfers of property
C.Sect. 707(b)(1) on disallowance of losses
D.Sect. 707(b)(2) on treatment of gains as ordinary income
E.Sect. 707(b)(3) on ownership of a capital or profits interest
F.Sect. 707(b)(3)(c) on guaranteed payments
II.Administrative guidance and decisions involving Sect. 707
A.Relevant IRS private letter rulings and written determinations
B.Canal Corp. v. Commissioner, U.S. Tax Court
1.Leveraged partnership transaction triggered anti-abuse rules
III.Current IRS audit policy
A.Partner-partnership structures currently under audit
B.Lessons for other taxpayers and advisors
IV.Transactions that seem problematic, permissible going forward from a tax standpoint
Benefits
The following topics were also covered during the presentation.
- Critically important terms of Sect. 707, related administrative guidance and court rulings.
- Transactions that are most likely to run afoul of the disguised sale and anti-abuse rules, and those likely to avoid a taxability declaration.
- The kinds of structures currently attracting attention in IRS audits, and the implications for other taxpayers and advisors.
June 8, 2011