On June 17, 2024, the IRS announced the formation of a dedicated group in the Office of Chief Counsel specifically focused on developing guidance on partnerships, which is expected to work with a new “passthrough working group” being established in the Large Business and International Division of the IRS. At the same time, Treasury and the IRS launched an attack on a specific partnership strategy involving so-called “basis bump” or “basis shifting” transactions involving related parties through a combination of guidance challenging the substance of such arrangements and declaring such arrangements to be “transactions of interest” that are subject to the strict disclosure requirements of the “reportable transaction” rules.1
Partnership Taxation
Senator Manchin Announces That He Will Not Support the Build Back Better Act – Where Things Stand Now
Today, December 19, 2021, Senator Joe Manchin (D., W.Va.) said that he opposes the Build Back Better Act, which effectively prevents its passage. While there are no immediate prospects for the Build Back Better Act to become law, future tax acts tend to draw upon earlier proposals. With a view…
Section 1446(f) Final Regulations: Key Changes to Guidance on Non-Publicly Traded Partnership Interest Transfers by Non-U.S. Persons
On October 7, 2020, the U.S. Internal Revenue Service (“IRS”) and Treasury Department released final regulations[1] providing guidance on the rules imposing withholding and reporting requirements under the Code[2] on dispositions of certain partnership interests by non-U.S. persons (the “Final Regulations”). The Final Regulations expand and modify proposed regulations[3] that were published on May 13, 2019 (the “Proposed Regulations”), and which we described in a prior Tax Talks post.[4] Unless otherwise specified, this post focuses on the differences between the Proposed Regulations and the Final Regulations affecting transfers of interests in non-publicly traded partnerships.
Enacted as part of the “Tax Cuts and Jobs Act,” Section 1446(f) generally requires a transferee, in connection with the disposition of a partnership interest by a non-U.S. person, to withhold and remit ten percent of the “amount realized” by the transferor, if any portion of any gain realized by the transferor on the disposition would be treated under Section 864(c)(8) as effectively connected with the conduct of a trade or business in the United States (“Section 1446(f) Withholding”).[5]
Prior to issuing the Proposed Regulations, the IRS had issued Notice 2018-08 and Notice 2018-29 to provide interim guidance with respect to Section 1446(f) Withholding.
House of Representatives and Senate Conferees Reach Agreement on the Tax Cuts and Jobs Act (H.R. 1): Description of the Conference Agreement and Differences from House and Senate Versions
On Friday, December 15, the U.S. House of Representative and Senate conferees reached agreement on the Tax Cuts and Jobs Act (H.R. 1) (the “Final Bill”), and released legislative text, an explanation, and the Joint Committee on Taxation estimated budget effects (commonly referred to as the “score”). Next week the House and Senate are each expected to pass the bill, and it is expected to be sent to the President for signature the following week. As the conferees actually signed the conference text, changes (even of a limited and/or technical nature) are extremely unlikely at this point.
The Final Bill largely follows the Senate bill, but with certain important differences. We outline some of the most significant differences between the Final Bill, the earlier House bill, and the Senate bill. We then discuss in detail some of the most significant provisions of the Final Bill. The provisions discussed are generally proposed to apply to tax years beginning after December 31, 2017, subject to certain exceptions (only some of which are noted below). While we discuss some of these provisions in detail, we do not address all restrictions, exclusions, and various other nuances applicable to any given provision.