I. Overview -

On August 6, 2015, the Internal Revenue Service (the “IRS”) and the Treasury Department announced their intention in Notice 2015-54 (the “Notice”) to issue regulations (the “Future Regulations”) under Sections 721(c), 482, and 6662 of the Internal Revenue Code (the “Code”)1 to address certain partnership transactions involving a partnership (domestic or foreign) between a U.S. taxpayer and a related foreign partner that are designed to shift income or gain to the foreign partner. The Notice specifically addresses transactions where a U.S. taxpayer contributes appreciated property to a partnership that adopts Section 704(c) methods, special allocations under Section 704(b), and/or inappropriate valuation techniques to shift gain or income to related foreign partners. The Future Regulations will generally deny non-recognition treatment for a contribution by a U.S. taxpayer of appreciated property to a partnership with a foreign affiliate unless the parties comply with certain requirements designed to ensure that any built-in gain will be recognized by the contributing partner. In addition, new regulations under Section 482 will be issued to specify transfer pricing methods applicable to controlled transactions involving related-party partnerships.