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New IRC 721(c) Regulations and Contributions to Foreign Partnerships

Remedial Allocations and Structuring Transfers to Foreign Partnerships to Ensure Gain Deferral

Recording of a 90-minute premium CLE/CPE webinar with Q&A

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Conducted on Wednesday, September 6, 2017

Recorded event now available

or call 1-800-926-7926

This CLE/CPE course will provide tax counsel with a detailed and practical guide to the rules governing contributions by U.S. persons to “related foreign partnerships,” particularly in the wake of new IRC 721(c) Treasury Regulations, which effectively end non-recognition treatment of partnership contributions if a US person contributes appreciated property to a partnership (US or foreign) in which the US person and related foreign persons own 80 percent or more of the partnership’s interests. The panel will review the specific changes the new regulations make to the previous rules found in Notice 2015-54, and offer guidance on allocation methods on covered contributions.

Description

Ownership of interests in a partnership in which there are “related foreign partners” creates multiple challenges for U.S. taxpayers and their advisers. Besides complex and burdensome reporting requirements, some property transfers and contributions that would be tax-free to a partnership are a taxable event if made to a “section 721(c) partnership. If a US person transfers appreciated property to a US partnership and the partnership qualifies as a “section 721(c) partnership” as defined in the regulations, the transfer generally will not be tax-free (though the partnership may adopt the gain deferral method in which the US person would recognize the built-in gain associated with the property over time).

The IRS recently issued temporary and proposed regulations under Section 721(c) which changed the tax treatment of certain contributions of appreciated property by a US person to a partnership in which the US person and related foreign persons own 80 percent or more of the partnership’s interests. The new regulations generally follow and supersede the prior guidance of Notice 2015-54, with some clarifications.

U.S. taxpayers must recognize pre-contribution gain on certain appreciated property to a partnership with “related foreign partners” unless the partnership adopts the “gain deferral method” for the contributed property. This gain deferral method requires the partnership to use remedial allocations for all built-in gain on the contributed property.

Tax counsel must know the technical requirements of the new rules to avoid adverse tax consequences from partnership contributions. The rules do not apply to all contributions of property to all partnerships, so counsel and advisers must understand how the new regulations fit into the framework of owning foreign partnership interests.

Listen as our expert panel goes into detail on the forthcoming regulations and provides practical suggestions for leveraging the new rules to preserve nonrecognition treatment.

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Outline

  1. Default rules on contributions to partnerships
  2. Treas. Reg. TD 9814, Transfers of Certain Property by U.S. Persons to Partnerships with Related Foreign Partners
  3. Gain deferral method and remedial allocations
  4. Structuring contributions to partnerships
  5. Reporting requirements for property contributions to partnerships

Benefits

The panel will review these and other key issues:

  • What is the default deferral treatment of contributions to partnerships?
  • Determining when a property transfer to a partnership requires recognition of built-in appreciation
  • Structuring contributions to 721(c) partnerships to apply gain deferral method
  • Understanding remedial allocations applied to contributed property

Faculty

Richard Blumenreich
Richard Blumenreich

Principal-in-Charge
KPMG

Mr. Blumenreich is principal-in-charge of the Washington National Tax Credit and Energy Advisory Services Group. For...  |  Read More

Morgan Holtman
Morgan Holtman
Director, Passthroughs Group
KPMG

Ms. Holtman's practice focuses on cross-border partnership matters with particular emphasis on complex equity...  |  Read More

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