New final, temporary and proposed regulations address leveraged transactions, “bottom-dollar” guarantees and other issues, but postpone action on some key questions.

On October 4, 2016, the Internal Revenue Service (IRS) issued a suite of regulatory guidance that will significantly restrict the use of leveraged partnerships to defer gain in transactions subject to the “disguised sale” rules under Internal Revenue Code (IRC) Section 707 by: (i) treating all debt as “nonrecourse” for purposes of IRC Section 707 and (ii) essentially prohibiting many “bottom-dollar” guarantees. In response to significant criticism of prior proposed regulations, which would have made sweeping changes to the general partnership debt classification rules under IRC Section 752, this new regulatory package represents a more targeted approach to limiting certain tax planning opportunities inherent in the existing regulations that have been used in transactions that the IRS considers abusive.