Appreciated Property to Partnerships With Foreign Partners - - PowerPoint PPT Presentation

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New IRS Partnership Transfer Rules for Contributions of Appreciated Property to Partnerships With Foreign Partners

Understanding Impact of IRS Notice 2015-54 and Preserving Nonrecognition Treatment

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1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific TUESDAY, OCTOBER 20, 2015

Presenting a live 90-minute webinar with interactive Q&A

• L. Andrew Immerman, Partner, Alston & Bird, Atlanta

Matthew P . Moseley, Alston & Bird, Washington, D.C. Heather Ripley, Alston & Bird, New York

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New IRS Partnership Transfer Rules for Contributions of Appreciated Property to Partnerships With Foreign Partners

Understanding Impact of IRS Notice 2015-54 and Preserving Nonrecognition Treatment

• L. Andrew Immerman

Matthew Moseley Heather Ripley October 20, 2015

Outline

• Background & pre-Notice rules on transfers to foreign

partnerships

• Notice 2015-54 rules under Code § 721(c) requiring gain

recognition

• How to defer gain recognition under the Notice
• Notice 2015-54 rules under Code § 482

5

Transfers to Partnerships – General Rule

No gain or loss shall be recognized to a partnership or any of its partners in the case of a contribution of property to the partnership in exchange for an interest in the partnership. [IRC § 721(a)]

6

Transfers to Partnerships - Example

• Partner P contributes Patent (FMV $1 million, zero tax basis) to Partnership.

(If P were to sell Patent at FMV, P would receive $1 million.) Partner R contributes cash of $1 million to Partnership.

• P recognizes no gain at the time of contribution.
• P has a zero basis in its partnership interest. [IRC § 722]
• Partnership has a zero basis in Patent. [IRC § 723]
• Since Patent and the cash are of equal value, P and R agree to 50/50

partnership.

• P has exchanged Patent for a 50% interest in a partnership that has $1 million cash

without recognizing gain – almost as if he sold ½ his interest in Patent to R for $500,000, without recognizing any gain.

• If Partnership immediately sells Patent, however, the $1 million built-in gain

at the time of contribution will be allocated (taxable) entirely to P, the contributor of Patent. Thus, P has merely deferred his tax and not avoided it permanently.

7

Transfers to Partnerships – “Investment Company” Exception

• Gain (but not loss) recognized on the transfer of property to an

“investment company” as defined by reference to the rules for transfers to corporations. [IRC §721(b); IRC § 351(e)(1) and Reg. § 1.351-1(c)]

• A partnership is an “investment company” if, after the exchange, more

than 80% of the value of its assets are held for investment and are:

• Readily marketable stocks and securities,
• Interests in real estate investment trusts (REITs), or
• Interests in “regulated investment companies” (RICs).
• But no gain on transfer to “investment company” if the transfer does

not result in diversification.

8

Transfers to Partnerships – Other Pre-Notice Exceptions

• Contributions of services in exchange for a partnership interest

are taxable. Services are not “property” – only property can be contributed tax free).

• Partnership’s assumption of liabilities (or receipt of property

subject to liabilities) may be taxable. [IRC §§ 721, 731, 752]

• “Disguised sales” of property to a partnership. [IRC § 707(a)]
• Incredibly complicated regulations on when a purported contribution is a

disguised sale.

• Actual sales of course taxable.

9

Background & Pre-Notice Rules

• Until their repeal by the Taxpayer Relief Act of 1997, Code §§

1491-1494 imposed 35% excise tax on transfers by U.S. person

• f appreciated property to foreign partnership.
• The Taxpayer Relief Act of 1997 repealed the excise tax and

instead imposed enhanced information reporting requirements with respect to foreign partnerships. [IRC §§ 6038, 6038B and 6046A]

10

Background – Code § 367

• Section 367 and its predecessor enacted to prevent US persons from

avoiding US tax by using nonrecognition transactions to transfer appreciated property to foreign corporations. [See IRC§ 367(a)]

• Section 367(d) governs outbound transfers of intangibles to foreign

corporations

• A US person who transfers intangible property to a foreign corporation in a § 351 or 361

exchange is treated as having sold the property for payments contingent on the property’s productivity, use or disposition and receiving amounts that reasonably reflect annual payments that would be received over the property’s useful life or at the time of disposition.

• Amounts recognized by the US person must be “commensurate with income”

attributable to the intangible.

11

Background– § 367 Regulations for Outbound Transfers Involving Partnerships

• Transfers by partnership with partner who is US person – US

partner treated as transferring directly its proportionate share of partnership property to foreign corporation. [Reg. § 1.367(a)- 1T(c)(3)(i)(A) and 1.367(d)-1T(a)]

• Transfers of partnership interest by US person – US partner

treated as transferring directly its proportionate share of partnership property to foreign corporation. [Reg. § 1.367(a)- 1T(c)(3)(ii)(A) and 1.367(d)-1T(a)]

12

Background – Regulatory Authority under TRA of 1997

• Code § 367 only applies to transfers to foreign corporations.
• The 1997 Act granted regulatory authority to the Secretary to
• verride §721(a) nonrecognition under:
• Code § 721(c) to override general nonrecognition under if built-in gain on

contributed property, when recognized, would be includible in the income

• f a non-US person; and
• Code § 367(d)(3) to apply the § 367(d) contingent payment sale rules to
• utbound transfers of intangibles to foreign partnerships.
• No regulations have ever been issued under these provisions.

13

Background – Partnership Allocations, Generally

• Partner’s distributive share determined under partnership agreement

unless the agreement does not have allocation rules or the allocation provided lacks substantial economic effect. [IRC § 704(a) and (b)]

• Partnership required to allocate income, gain, loss and deduction with

respect to contributed property to take into account the difference between the contributing partner’s tax basis in the property and its FMV at the time of contribution. [IRC § 704(c)(1)(A)]

• Any reasonable method may be used. [Reg. § 1.704-3(a)(1)]
• Three generally “reasonable methods”: traditional method, traditional

method with curative allocations, and remedial method. [Reg. § 1.704- 3(a)]

14

Background – Partnership Allocations, Anti-Abuse

• If partnership’s allocation method is unreasonable, Secretary can

make adjustments. [Reg. § 1.704-3(a)(10)]

• Even if an allocation is respected for § 704(b) purposes, there

may be reallocation under other provisions, such as Code § 482. [Reg. § 1.704-1(b)(1)(iii)]

• Rodebaugh v. Comm’r, TC Memo 1974-36, aff’d, 518 F2d 73 (6th Cir.

1975) (IRS made § 482 allocations different than those provided by the partnership agreement)

15

Background – Remedial allocation method

• Remedial method can eliminate distortions that arise under the

traditional method due to the ceiling rule by making notional allocations to noncontributing partners and offsetting allocations to the contributing partner.

• Ceiling rule – total income, gain, loss or deduction allocated to partners for a

taxable year with respect to a property cannot exceed the total corresponding partnership items with respect to that property. [Reg. § 1.704-3(b)]

• IRS does not require use of remedial method generally but application
• f remedial method with respect to contributed property is required to

avoid immediate gain recognition under Notice 2015-54.

16

Stated Reasons for Regulatory Changes

• Treasury and IRS aware of taxpayers who purport to be able to

contribute appreciated property to partnerships, consistent with Code §§ 704 and 482, such that the pre-contribution gain may be allocated to foreign persons not subject to US tax.

• Many taxpayers engaged in such transactions do not use the

remedial method and/or use special allocations or valuation techniques inconsistent with the arm’s length standard.

17

Overview of Notice 2015-54 Provisions

• Rules under Code § 721(c)
• In general, a US person must recognize gain on the contribution of certain

appreciated property (§ 721(c) Property) to a foreign partnership with foreign related partners (§ 721(c) Partnership) unless the Gain Deferral Method

• applies. Broad anti-avoidance provision (principal purpose).
• Generally effective for transfers on or after August 6, 2015.
• Rules under Code §§ 482 and 6662
• Would apply principles of Reg. § 1.482-7 (relating to cost-sharing

arrangements) to controlled transactions involving partnerships, including giving IRS ability to make periodic adjustments and corresponding § 704 allocations.

• Would enhance Reg. § 1.6662-6(d) documentation requirements.
• Generally, not effective until regulations published.

18

Transfers to Partnerships - What Is the IRS Worried About?

• Return to prior example in which P contributed Patent with a

FMV of $1 million but a zero basis. Partner R contributes cash of $1 million to Partnership. Partnership is 50/50.

• Partnership takes a zero dollar carryover basis in Patent.
• P recognizes no gain, but takes a zero dollar substituted basis in its

Partnership interest.

• P and R each get $1 million of credit for their contributions,

even though P contributed appreciated property and R contributed cash, and P recognized no gain on contribution

• f Patent.

19

Contributor Is Supposed to Recognize the Built-In Gain

• What happens if Partnership sells Patent for $1 million before

Partnership has claimed any amortization?

• In a 50/50 partnership, you might expect the $1 million gain to be allocated

equally between P and R, and that P and R would be taxable on $500,000 each.

• But an equal allocation of the $1 million gain would fail to account for

the fact that R has enjoyed no gain at all. R’s share of Partnership’s assets is still worth only $1 million, the amount of cash R contributed.

• An equal allocation would also fail to account for the fact that P has

enjoyed the full benefit of the $1 million gain. P’s share of Partnership’s assets is worth $1 million even though P has a zero basis in Patent.

• Code § 704(c) says: allocate 100% of the $1 million gain to P.

20

Amortization May Shift Gain to Non-Contributing Partner Over Time

• If Partnership sold Patent for $1.5 million, P and R would equally

share in the value above $1 million. The extra $500,000 would be taxed equally to P and R.

• P would have been allocated 100% of the built-in gain when Patent was

contributed but only 50% of the increase in value after the contribution.

• P would be allocated $1,250,000; R would have been allocated $250,000.
• Allocating 100% of the built-in gain to P is fair compared to the allocation of

some of the built-in gain to R.

• But suppose Patent is amortizable over 15 years (or anyway would be

amortizable over 15 years if it had a full fair market basis and was newly placed in service).

• In this case, the tax regulations cause the built-in gain to “burn off” over time.

21

“Burn Off” of Built-In Gain

• Regulations under § 704(b) provide that for purposes of maintaining

capital accounts and calculating built-in gain:

• Amortize the $1 million “book value” (i.e., the FMV at the time of contribution)

ratably over 15 years (i.e., $66,667 per year).

• Allocate ½ of the annual amortization (i.e., $33,333 per year) to each partner.
• Since Partnership has zero dollar basis in Patent, there is no actual tax

amortization that can be allocated between the partners under the traditional allocation method of § 704(c).

• The inability to allocate actual tax amortization to R is a consequence
• f the “ceiling rule,” which says that the allocation of tax items to

partners is limited to the corresponding tax items of the partnership. [Reg. § 1.704-3(b)]

• If an asset has zero basis in the hands of Partnership, there is nothing to

allocate to R.

22

“Burn Off” of Built-In Gain (2)

• The ceiling rule result may be fair to P because P contributed zero-

basis property without recognizing gain.

• But this result may be unfair to R because R in effect spent $500,000

to acquire a 50% interest in Patent. R is deprived of amortization on that $500,00 interest only because P had a zero basis in Patent.

• R suffers because of P’s tax attributes.
• After 15 years, the $1 million “book value” has been amortized down to zero.
• If Partnership sells Patent after 15 years for $1 million, the $1 million gain is

allocated equally to P and R.

• The “book value” amortization eliminates all of P’s built-in gain and

shifts half of it to R.

• Unfair or not, traditionally the elimination of the built-in gain over time was

generally inevitable.

23

“Burn Off” of Built-In Gain (3)

• P’s gain deferral is matched by the loss of amortization

deductions (and, consequently, taxable income) for R.

• If P and R are US taxpayers paying tax at the same rates, P may

benefit at R’s expense, but the IRS does not lose revenue.

• But if R is a foreign person no subject to US tax, the gain deferral

is a pure win for the taxpayers and a pure loss for the IRS.

• The Notice’s rules under § 721(c) are designed to impose a tax

cost on P in situations where R is a related foreign person, so that the IRS’s loss of revenue is mitigated or eliminated.

24

Notice 2015-54 – Rules under Code § 721(c)

• In general, a US person must recognize gain on the contribution
• f certain appreciated property (§ 721(c) Property) to a foreign

partnership with foreign related partners (§ 721(c) Partnership) unless the Gain Deferral Method applies.

• Exceptions
• De Minimis Exception - $1 million threshold
• Nonrecognition under § 721(a) will apply if no more than $1 million of § 721(c)

Property is contributed by a US transferor and related persons in a given year, and

• The partnership is not already applying the Gain Deferral Method with respect to a

prior contribution by the US transferor or related persons.

• Property excluded from the definition of § 721(c) Property (limited).

25

Notice 2015-54 – Rules under Code § 721(c) Definitions

• § 721(c) Property – any built-in gain property, except cash equivalents, securities

(within the meaning of Code § 475(c)(2) without regard to § 475(c)(4)), and tangible property with built-in gain no more than $20,000.

• Includes interest in partnership that owns § 721(c) Property.
• § 721(c) Partnership – any partnership (US or foreign) to which a US person

contributes § 721(c) Property if, after the contribution and related transactions, (1) a related foreign person is a direct or indirect partner and (2) the US transferor and

• ne or more related foreign persons own more than 50% of the interests in

partnership capital, profits, deductions or losses.

• Related foreign person means a non-US person, other than a partnership, related to the US

transferor within the meaning of Code § 267(b) or 707(b)(1).

• No minimum ownership interest for related foreign person.
• Threshold questions: is an arrangement is a partnership? Is a particular person a

partner? (Rules may be broad enough to reach certain joint ventures.)

26

Notice 2015-54 – Rules under Code § 721(c) Gain Deferral Method

• Requirements to avoid immediate gain recognition:

1. Remedial method 2. Pro rata allocations 3. US transferor gain recognition on occurrence of “Acceleration Events” 4. Gain Deferral Method for subsequent contributions 5. Reporting and other requirements

• Anti-abuse rule (principal purpose), of course.

27

Gain Deferral Method – Remedial Method

• In the example discussed above, P shifted $500,000 of built-in

gain on Patent to R – a consequence of the traditional method “ceiling rule.” Partnership had no actual tax amortization to allocate to R.

• The remedial method of allocating built-in gain shatters the

ceiling.

• Under the remedial method, “notional items” of income and

deduction are treated as if they were real.

• R is entitled to deduct $33,333 annually.
• P must report income of $33,333 annually.

28

Gain Deferral Method – Remedial Method (2)

• P recognizes its built-in gain, even if P receives no cash.
• As a US taxpayer, P’s recognition of $33,333 annually is painful.
• It is irrelevant whether P receives a cash distribution to pay the tax: the

$33,333 may be “phantom income.”

• At least P gets to defer its tax instead of reporting it all at once.
• R gets to take as much amortization as it would have taken had

R bought a 50% interest in Patent.

• But if R is a non-US person not subject to US tax, the amortization under

US tax principles is useless.

29

Gain Deferral Method – Remedial Method (3)

• Remedial allocations are in theory more accurate than the
• alternatives. Even when the other partners are not related foreign

persons, the IRS can lose out if the other partners are tax-exempt or effectively tax-exempt (or pay tax at lower rates than the transferor).

• So why doesn’t the IRS always demand it?
• Remedial allocations require the taxpayers to report “notional” items.
• In the absence of statutory authority, it is questionable whether the IRS and

Treasury could force “notional” items on taxpayers.

• Can the IRS require the remedial method under § 721(c)?
• Seems coercive; but if IRS could have required current gain recognition, with no
• pportunity for even partial deferral under the remedial method, then arguably

taxpayers can’t complain that the IRS has given them an out.

30

Gain Deferral Method – Pro-Rata Allocations

• All allocations must be pro-rata; special allocations are out.
• The Notice presents this example:
• “if income with respect to an item of Section 721(c) Property is allocated

60 percent to the U.S Transferor and 40 percent to a Related Foreign Person in a taxable year, then gain, deduction, and loss with respect to that Section 721(c) Property must also be allocated 60 percent to the U.S. Transferor and 40 percent to the Related Foreign Person).”

31

Gain Deferral Method – Acceleration Events

• Gain Deferral Method requires the US transferor to recognize any remaining built-in

gain on occurrence of Acceleration Event.

• With limited exceptions, an Acceleration Event is any transaction that would reduce

the amount of remaining built-in gain that a US transferor would recognize under the Gain Deferral Method or defer recognition of the built-in gain.

• Acceleration Event also deemed to occur in the year any party fails to comply with the Gain

Deferral Method.

• Excludes specified transactions:
• Transfer of § 721(c) Partnership interest to US corporation under § 351 or 381(a) if Gain

Deferral Method continues to apply;

• Transfer by § 721(c) Partnership of lower-tier partnership with § 721(c) Property to US

corporation under § 351 if Gain Deferral Method continues to apply;

• Transfer by § 721(c) Partnership of § 721(c) Property to US corporation under § 351; and
• Transfer by § 721(c) Partnership of § 721(c) Property to foreign corporation under § 351 to

the extent treated as transferred by US person under § 367(a) regulations.

32

Gain Deferral Method – Subsequent Contributions

• The Gain Deferral Method must be “adopted for all Section

721(c) Property subsequently contributed to the Section 721(c) Partnership by the U.S. Transferor and all other U.S. Transferors that are Related Persons.”

• The requirement to use the Gain Deferral Method for subsequent

contributions continues until either no built-in gain remains on the property first subject to the Gain Deferral Method, or 60 months after the initial contribution, whichever comes first.

33

Gain Deferral Method – Reporting & Other Requirements

• Form 8865 (“Information Return of U.S. Persons With Respect To

Certain Foreign Partnerships”)

• Used for reporting information under:
• § 6038 (“Information reporting with respect to certain foreign corporations and

partnerships”).

• § 6038B (“Notice of certain transfers to foreign persons”).
• § 6046A (“Returns as to interests in foreign partnerships”).
• Form 8865, Schedule O, will be amended for 2015 to require supplemental

information for contributions of § 721(c) Property.

• Plus: Regulations will be amended to require information concerning

§ 721(c) Property, whether the partnership is domestic of foreign.

• The amended regulations will not require new filings for taxable years ending

before the date the regulations are published.

34

Gain Deferral Method – Reporting & Other Requirements (2)

• Extension of statute of limitations
• Regulations will require US transferor to extend statute for all items

related to § 721(c) Property.

• This aspect of Notice does not purport to be in effect yet.
• Regulations will not require extensions for taxable years that end before

the date the regulations are published.

35

Gain Deferral Method – Anti-Abuse Rule

• If the transferor engages in a transaction or transactions with a

“principal purpose” of avoiding the regulations described in the Notice:

• The transaction or transactions may be disregarded.
• The arrangement may be recharacterized in accordance with its

substance, which specifically may include disregarding an intermediate entity.

36

Effective Date – Rules under Code § 721(c)

• Generally transfers to partnerships on or after August 6, 2015

(the date of the Notice).

• Exception for new reporting rules, which would be effective when

regulations are published.

• Provisions also apply to partnership contributions that result from

retroactive entity classification elections filed on or after August 6, 2015.

• Taxpayers should monitor transfers of partnership interests that could

result in technical terminations and deemed contributions.

37

Observations on Notice’s Rules under Code § 721(c)

• Notice explains what the regulations will contain, but not the

actual language of the regulations.

• Although the actual language of the forthcoming regulations does

not yet exist – not even in proposed form – the rules apply retroactively to transfers made on or after August 6, 2015 (the day the notice was issued).

• Some question the validity of the retroactive effective date, but

challenging the effective date will not be easy.

• Taxpayers should assume that regulations are currently in effect,

even though no one knows what the regulations will say.

38

Notice 2015-54 – Rules under Code §§ 482 and 6662

• Notice 2015-54 announced that Treasury and the IRS intend to

issue regulations under sections 482 and 6662 applicable to controlled transactions involving partnerships to ensure the appropriate valuation of such transactions.

• Code § 482 gives the IRS the authority to make allocations

among commonly controlled entities in order to prevent evasion

• f taxes or clearly to reflect income.

39

Background – Arm’s Length Standard and Application

• The applicable standard under § 482 is the “arm’s length standard.”
• Determination must be made under the method that provides the most reliable

measure of an arm’s length result under all the facts and circumstances.

• Where separate transactions are interrelated, the most reliable

method may require combining the effect of separate transactions to determine true taxable income. [Reg. § 1.482-1(f)(2)(i)]

• The IRS will evaluate the results of a controlled transaction as actually

structured unless it lacks economic substance; the IRS may consider alternatives available to the taxpayer in determining whether the transaction was arm’s length, and may make adjustments based on such alternatives. [Reg. § 1.482-1(f)(2)(ii)(A)]

40

Background - CSAs

• In a “cost sharing arrangement” (CSA) controlled participants share

the costs/risks of developing cost shared intangibles in proportion to their reasonably anticipated benefit. [Reg. § 1.482-7]

• Reg. § 1.482-7(g)(1) provides methods for evaluating the arm’s length

amount charged in a “platform contribution transaction” (i.e., a contribution of outside IP to a CSA)

• The controlled participants have the right to exploit the cost shared intangibles

in their respective territory without further payments to other controlled participants

• Reg. §§ 1.482-4 (intangibles) and 1.482-9 (services) provide methods

for determining arm’s length results for non-CSA transactions (including partnerships) involving intangibles.

41

Background – Commensurate with Income

• In a controlled transfer or license of intangible property (as

defined in Code § 936(h)(3)(B)), the consideration charged must be commensurate with the income attributable to the intangible.

• If the consideration charged is not commensurate with income,

the IRS may make periodic adjustments to such consideration (or royalty) in a subsequent taxable year without regard to whether the taxable year of the original transfer remains open. [Reg. §§ 1.482-4(f)(2)(i); -7(i)(6)(i)]

42

Background – Transfer Pricing Penalty Protection

• A penalty may not be asserted under § 6662 with respect to a

portion of an underpayment if there was reasonable cause and the taxpayer acted in good faith with respect to that portion. [IRC § 6664(c)]

• The requirements for meeting the “reasonable cause” requirement

are set forth in Code § 6662(e)(3)(B) and Reg. § 1.6662-6(d), and include the requirement that the taxpayer maintain sufficient contemporaneous documentation to establish that its chosen transfer pricing method, and the application of that method, provided the most reliable measure of an arm’s length result.

43

Why Act Now?

• Treasury and the IRS state that they are aware that certain

taxpayers may be valuing property contributed to partnerships, or the property or services involved in related controlled transactions, in a manner contrary to § 482.

• Although the IRS has broad authority under § 482 to make

allocations to properly reflect the economics of a controlled transaction, making adjustments years after the fact is challenging, particularly given the IRS disadvantage in evaluating transactions relative to taxpayers, who have better access to information about their business and risk profile.

44

Notice 2015-54 – Proposal Regarding Valuation

• New regulations will provide specified methods for controlled

transactions involving partnerships based on the specified methods in

• Reg. § 1.482-7(g) as appropriately adjusted in light of the differences

in the facts and circumstances between such partnerships and cost sharing arrangements.

• The new regulations will provide periodic adjustment rules that are

based on the principles of Reg. § 1.482-7(i)(6) for controlled transactions involving partnerships.

• In the event of a trigger based on a significant divergence of actual returns from

projected returns for controlled transactions involving a partnership, the IRS may make periodic adjustments to the results of such transactions under a method based on Reg. § 1.482-7(i)(6)(v), as appropriately adjusted, as well as any necessary corresponding adjustments to Code § 704(b) or (c) allocations.

45

Notice 2015-54 – New Documentation Requirement

• Possible new regulations under Reg. § 1.6662-6(d) would require

additional documentation for certain controlled transactions involving partnerships.

• These regulations may require, for example, documentation of projected

returns for property contributed to a partnership (as well as attributable to related controlled transactions) and of projected partnership allocations, including projected remedial allocations covered by the notice, for a specified number of years.

46

Application of Current Law

• The Notice states that Code § 482 and related penalties

currently apply to controlled transactions involving partnerships.

• Allocations may be adjusted or contract terms may be imputed if

necessary to comport with the substance of the transaction.

• The principles, methods, and other considerations set forth in Reg. §

1.482-7 are currently relevant to controlled transactions involving partnership.

• An “aggregate” analysis of multiple transactions may provide the most

reliable measure of an arm’s length result.

• For contributions of IP, IRS may consider making periodic adjustments to

income in years subsequent to the contribution. [Reg. § 1.482-4(f)(2)]

47

Effective Date – Rules under Code §§ 482 and 6662

• The to-be issued Treasury regulations relating to controlled

transactions involving partnerships will be effective for transfers

• ccurring on or after the date of publication of the Treasury

Regulations.

• Given the emphasis in the Notice that existing law under §§ 482

and 6662 already applies to contributions to partnerships described in the Notice, taxpayer contributions to partnerships should be evaluated in light of these provisions.

• Are returns from partnership interests consistent with Code § 482

principles?

48

Request for Comments

• Comments are requested regarding:
• Regulations that will provide specified valuation methods and periodic

adjustment rules for controlled transactions involving partnerships based

• n § 1.482-7(g) and -7(i)(6); and
• The extent to which the documentation requirements in Reg. § 1.6662-

6(d)(2)(iii) should be expanded to include specific requirements for transactions involving partnerships.

• Given Altera, IRS might be expected to be more responsive to submitted comments.

49

Parting Thoughts on Rules under Code §§ 482 and 6662

• It may be advisable for a taxpayer to adopt adjustable payment

provisions to avoid possible periodic adjustments and to prepare documentation to provide protection against penalties.

• Consider larger context (Veritas, Mayo Foundation, Altera, new

proposed regulations under § 367(d), Notice 2014-52, explicit extension of cost sharing to partnership transactions, etc.).

• How will the IRS address pre-tax and post-tax contribution

values?

• How will the IRS apply periodic adjustments and aggregation in

the partnership context?

50

www.alston.com

Thank You

• L. Andrew Immerman

andy.immerman@alston.com Matthew Moseley matthew.moseley@alston.com Heather Ripley heather.ripley@alston.com