IRS requests comments on disguised-sale prop. regs.In Notice 2001-64, the IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws. requested comments on regulations to be proposed under Sec. 707(a)(2)(B) on disguised dis·guisetr.v. dis·guised, dis·guis·ing, dis·guis·es 1. a. To modify the manner or appearance of in order to prevent recognition. b. To furnish with a disguise. 2. sales of partnership interests. Specifically, the Service seeks input on the scope and substance of such guidance, including safe harbors Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. and exceptions. The legislative history of Sec. 707(a)(2)(B) states that Congress intended the provision to address taxpayers characterizing what were, in substance, sales of partnership property (such as partnership interests) as contributions, followed by (or preceded by) a related partnership distribution, to defer de·fer 1 v. de·ferred, de·fer·ring, de·fers v.tr. 1. To put off; postpone. 2. To postpone the induction of (one eligible for the military draft). v.intr. (or avoid) tax on that sale. Specifically, Congress was concerned about court decisions that allowed tax-free tax-free adj. Not subject to taxation; tax-exempt. tax-free Adjective not needing to have tax paid on it: a tax-free lump sum Adj. 1. treatment in cases economically indistinguishable from sales of property to a partnership or to another partner, believing that these transactions should be treated for tax purposes in a manner consistent with their underlying economic substance. In 1991, the IRS and Treasury issued final regulations under Sec. 707(a)(2)(B), adding Regs. Secs. 1.707-0 and 1.707-2-1.707-9. However, the government reserved Regs. Sec. 1.707-7 for rules on disguised sales of partnership interests. Ten years later, there is still no guidance. Based on the statutory language, many commentators questioned the Service's ability to enforce Sec. 707(a)(2)(B) (on the disguised sale of partnership interests) without regulations. These comments notwithstanding, the IRS believes that it can. In Letter Ruling (TAM) 200037005, the Service stated that it could apply Sec. 707(a)(2)(B) in the context of a disguised sale of a partnership interest in the absence of regulations, because the statute's plain language (as confirmed by the legislative history) imposes a liability on the taxpayer. Supporting the IRS's view, courts in similar circumstances CIRCUMSTANCES, evidence. The particulars which accompany a fact. 2. The facts proved are either possible or impossible, ordinary and probable, or extraordinary and improbable, recent or ancient; they may have happened near us, or afar off; they are public or have previously held that a statute's effectiveness is not conditioned on the issuance of regulations when they were prescribed pre·scribe v. pre·scribed, pre·scrib·ing, pre·scribes v.tr. 1. To set down as a rule or guide; enjoin. See Synonyms at dictate. 2. To order the use of (a medicine or other treatment). by statute; see Est. of Neumann Neu·mann , John von 1903-1957. Hungarian-born American mathematician who contributed to game theory, quantum mechanics, and functional analysis. Noun 1. , 106 TC 216 (1996), Est. of Maddox, 93 TC 228 (1989), Pelaez and Sons, 114 TC 473 (2000), and Pittway Corp., 102 F3d 932 (7th Cir. 1996). However, courts generally cannot substitute their own judgment in place of the Service when such power has expressly been granted to the IRS--instead, they focus on whether the taxpayer's position is a reasonable one, without the guidance of regulations. The comment period will run until March 31, 2002. FROM JENNIFER STEWART, HOUSTON, TX |
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