Tax Counsel's Guide to Partnership Disguised Sales Rules: Structuring Transactions to Avoid Taxable Events

This CLE/CPE webinar will provide tax counsel and advisers with a thorough, practical guide to the disguised sale rules for partnerships under current tax law and in light of pending tax reform. The panel will discuss the facts and circumstances tests under Treasury regulations, review potential changes to the disguised sale rules in pending tax reform, and offer useful guidance in drafting transfer documents to withstand IRS scrutiny.

Section 707(a)(2) provides rules for disguised sales and payments between a partner and a partnership, and rules for disguised sales of property between partners in a partnership and the tax treatment of such transactions. However, Treas. Reg. 1.707-3 provides a notable exception to the general rule that contribution of property in exchange for a partnership interest is a non-recognition event. Transactions falling under those listed in the regulation are treated as a sale of property by the partnership to the transferring partner, creating a taxable event requiring gain recognition. 

Tax counsel must recognize that Section 707 and its regulations put the burden of proof on the partnership to defend a transaction against a disguised sale challenge and the impact of potential amendments under the One Big Beautiful Bill Act.

Listen as our panel discusses the facts and circumstances tests under current Treasury regulations and potential changes to the disguised sale rules in the 2025 tax reform, and offers useful guidance in drafting transfer documents to withstand IRS scrutiny.