95108 Federal Register / Vol. 89, No. 231 / Monday, December 2, 2024 / Rules and Regulations 

Monensin in 

grams/ton 

Combination 

in grams/ton Indications for use Limitations Sponsor 

(i) 90 to 110 .......... .............................. Broiler chickens: As an aid in the prevention of coccidiosis caused by E. necatrix, 

E. tenella, E. acervulina, E. brunetti, E. 

mivati, and E. maxima.

Feed continuously as the sole ration. Not for broiler breeder replacement chickens. Do not feed to chickens over 16 weeks of 

age. Do not feed to laying chickens. In the absence of coccidiosis in broiler chickens the use of monensin with no withdrawal period may limit feed intake resulting in reduced weight 

gain. Do not allow horses, other equines, mature turkeys, or 

guinea fowl access to feed containing monensin. Ingestion of 

monensin by horses and guinea fowl has been fatal. 

016592 

058198 

(ii) 90 to 110 ......... .............................. Laying hen replacement chickens and 

layer breeder replacement chickens: As 

an aid in the prevention of coccidiosis 

caused by E. necatrix, E. tenella, E. 

acervulina, E. brunetti, E. mivati, and E. 

maxima.

Feed continuously as the sole ration. Not for broiler breeder replacement chickens. Do not feed to chickens over 16 weeks of 

age. Do not feed to laying chickens. In the absence of coccidiosis in broiler chickens the use of monensin with no withdrawal period may limit feed intake resulting in reduced weight 

gain. Do not allow horses, other equines, mature turkeys, or 

guinea fowl access to feed containing monensin. Ingestion of 

monensin by horses and guinea fowl has been fatal. 

016592 

058198 

* * * * * * * 

(2) * * * 

Monensin in 

grams/ton 

Combination 

in grams/ton Indications for use Limitations Sponsor 

(i) 54 to 90 ............ .............................. Growing turkeys: For the prevention of 

coccidiosis caused by E. adenoeides, E. 

meleagrimitis, and E.gallopavonis.

For growing turkeys only. Feed continuously as sole ration. 

Some strains of turkey coccidia may be monensin tolerant or 

resistant. Not for broiler breeder replacement chickens. Do not 

feed to laying hens. Do not feed to chickens over 16 weeks of 

age. Monensin may interfere with development of immunity to 

turkey coccidiosis. Do not allow horses, other equines, mature 

turkeys, or guinea fowl access to feed containing monensin. 

Ingestion of monensin by horses and guinea fowl has been 

fatal. 

016592 

058198 

* * * * * * * 

(5) Minor species— 

Monensin in 

grams/ton Indications for use Limitations Sponsor 

(i) 73 ..................... Growing bobwhite quail: For the prevention of coccidiosis caused by Eimeria dispersa and E. 

lettyae.

Feed continuously as sole ration. Not for broiler breeder replacement chickens. Do not feed to laying hens. Do not feed to chickens over 16 weeks of 

age. Do not allow horses, other equines, mature turkeys, or guinea fowl access to feed containing monensin. Ingestion of monensin by horses and 

guinea fowl has been fatal. 

016592 

058198 

(ii) 20 .................... Goats maintained in confinement: For the prevention of coccidiosis caused by Eimeria crandallis, 

E. christenseni, and E. ninakohlyakimovae.

Feed continuously. Do not feed to lactating goats. See paragraph (d)(11) of 

this section for provisions for monensin liquid Type C goat feeds. 

016592 

058198 

* * * * * * * 

* * * * * 

Dated: November 20, 2024. 

P. Ritu Nalubola, 

Associate Commissioner for Policy. 

[FR Doc. 2024–28061 Filed 11–29–24; 8:45 am] 

BILLING CODE 4164–01–P 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Part 1 

[TD 10014] 

RIN 1545–BL21 

Recourse Partnership Liabilities and 

Related Party Rules 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Final rule. 

SUMMARY: This document contains final 

regulations relating to recourse 

liabilities of a partnership and special 

rules for related persons. These 

regulations affect partnerships and their 

partners. 

DATES: 

Effective date: These regulations are 

effective on December 2, 2024. 

Applicability dates: For dates of 

applicability, see §§ 1.704–2(l)(1)(vi), 

1.752–2(l)(4), and 1.752–5(a). 

FOR FURTHER INFORMATION CONTACT: 

Concerning these final regulations, 

contact Caroline Hay of the Office of 

Associate Chief Counsel (Passthroughs 

and Special Industries), (202) 317–6850 

(not a toll-free number). 

SUPPLEMENTARY INFORMATION: 

Authority 

This document amends the Income 

Tax Regulations (26 CFR part 1) under 


ddrumheller on DSK120RN23PROD with RULES1
Federal Register / Vol. 89, No. 231 / Monday, December 2, 2024 / Rules and Regulations 95109 

section 752 of the Internal Revenue 

Code (Code) regarding a partner’s share 

of a recourse partnership liability (final 

regulations). 

The final regulations are issued under 

the express delegation of authority 

under section 7805(a) of the Code, 

which provides that ‘‘[t]he Secretary 

shall prescribe all needful rules and 

regulations for the enforcement of [the 

Code], including all rules and 

regulations as may be necessary by 

reason of any alteration of law in 

relation to internal revenue.’’ 

Background 

Section 752(a) provides, in general, 

that an increase in a partner’s share of 

partnership liabilities (or an increase in 

a partner’s individual liabilities by 

reason of the assumption by the partner 

of partnership liabilities) will be 

considered a contribution of money by 

the partner to the partnership. 

Conversely, section 752(b) provides that 

a decrease in a partner’s share of 

partnership liabilities (or a decrease in 

a partner’s individual liabilities by 

reason of the assumption by the 

partnership of the individual liabilities) 

will be considered a distribution of 

money to the partner by the partnership. 

When determining a partner’s share of 

partnership liabilities, the existing 

regulations under section 752 (existing 

§§ 1.752–1 through 1.752–3) distinguish 

between two categories of liabilities— 

recourse and nonrecourse. In general, a 

partnership liability is recourse to the 

extent that a partner or related person 

bears the economic risk of loss (EROL) 

as provided in existing § 1.752–2 and 

nonrecourse to the extent that no 

partner or related person bears the 

EROL under existing § 1.752–2. See 

existing § 1.752–1(a)(1) and (2). A 

partner bears the EROL for a partnership 

liability if the partner or related person: 

(1) has a payment obligation as provided 

in existing § 1.752–2(b) (except as 

provided in existing § 1.752–2(d)(2)); (2) 

is a lender to the partnership as 

provided in existing § 1.752–2(c) (except 

as provided in existing § 1.752–2(d)(1)); 

(3) guarantees payment of interest on a 

partnership nonrecourse liability as 

described in existing § 1.752–2(e); or (4) 

pledges property as security for a 

partnership liability as provided in 

existing § 1.752–2(h). 

On December 16, 2013, the 

Department of the Treasury (Treasury 

Department) and the IRS published in 

the Federal Register (78 FR 76092) a 

notice of proposed rulemaking (REG– 

136984–12) that would amend the 

existing regulations under section 752 

relating to a partner’s share of a recourse 

partnership liability and the rules for 

related persons (proposed regulations). 

The provisions of the proposed 

regulations are explained in greater 

detail in the preamble to the proposed 

regulations. The Treasury Department 

and the IRS received two comments 

responding to the proposed regulations. 

A public hearing on the proposed 

regulations was not requested or held. 

The Treasury Department and the IRS 

are mindful that the proposed 

regulations were issued approximately 

eleven years ago. However, no 

intervening legislative changes 

regarding allocations of partnership 

liabilities have been made, no 

subsequent changes to regulatory rules 

concerning allocations of partnership 

liabilities address the issues in the 

proposed regulations, and the issues 

raised by the commenters continue to 

remain relevant. For these reasons, the 

Treasury Department and the IRS have 

determined that a new notice of 

proposed rulemaking or a further 

opportunity for public comment would 

be unlikely to generate different 

comments. Furthermore, issuing the 

same rules again as a notice of proposed 

rulemaking would unnecessarily delay 

further this rulemaking to the continued 

detriment of taxpayers desiring to apply 

these rules to allocate their partnership 

liabilities. 

Accordingly, after full consideration 

of the comments received, these final 

regulations adopt the proposed 

regulations with certain modifications 

in response to the comments described 

in the Summary of Comments and 

Explanation of Revisions. 

Summary of Comments and 

Explanation of Revisions 

I. Overlapping Economic Risk of Loss 

Under existing § 1.752–2(a), a 

partner’s share of a recourse partnership 

liability equals the portion of that 

liability, if any, for which the partner or 

related person bears the EROL. The 

proposed regulations would have 

provided a proportionality rule to 

determine how partners share a 

partnership liability when multiple 

partners bear the EROL for the same 

liability (overlapping EROL). Under the 

proportionality rule, the EROL borne by 

a partner would be the amount of the 

partnership liability (or portion thereof) 

multiplied by a fraction obtained by 

dividing the amount of EROL borne by 

the partner by the sum of the EROL 

borne by all partners with respect to that 

liability. 

One commenter suggested that the 

final regulations should not adopt the 

proportionality rule but should instead 

allocate liabilities among partners with 

overlapping EROL in a manner 

analogous to the manner in which a 

nonrecourse liability is allocated under 

§ 1.752–3. Specifically, the commenter 

suggested that such liabilities should be 

allocated in a manner consistent with 

the partner’s interest in partnership 

profits. The commenter stated that this 

allocation approach more closely 

reflects the partners’ economic 

arrangements and permits losses 

attributable to the liability to be 

allocated among the partners without 

any of the losses being suspended under 

section 704(d) of the Code. 

Under the existing section 752 

regulations, a recourse partnership 

liability is shared among partners that 

bear the EROL for the liability. 

Conversely, with a nonrecourse 

partnership liability, no partner bears 

economic risk with respect to the 

liability; therefore, the liability is 

generally allocated in accordance with a 

partner’s share of partnership profits. 

Adopting a framework applicable to a 

nonrecourse partnership liability for 

purposes of determining how a recourse 

partnership liability should be shared 

under section 752 could cause the 

liability to be allocated 

disproportionally among those partners 

depending upon their profit-sharing 

ratios even though the partners bear the 

same amount of EROL for the liability. 

The proportionality rule provides a 

reasonable approach in addressing how 

a recourse partnership liability should 

be shared when partners have 

overlapping EROL. Therefore, the final 

regulations do not adopt the 

commenter’s suggestion. 

Another commenter requested 

clarification on the effect of local law 

and separate agreements between 

partners in determining whether 

partners have overlapping EROL. Under 

existing § 1.752–2(b)(3), all statutory 

and contractual obligations relating to a 

partnership liability are taken into 

account for purposes of determining a 

partner’s EROL. Therefore, the 

proportionality rule applies to cases in 

which partners have overlapping EROL 

after taking into account all statutory 

and contractual obligations relating to 

the partnership liability. The final 

regulations illustrate in § 1.752–2(f)(9) 

that these obligations are considered in 

determining whether the partners have 

overlapping EROL. 

II. Tiered Partnerships 

Another overlapping EROL issue 

under section 752 relates to tiered 

partnerships. The proposed regulations 

would have provided guidance on how 

a lower-tier partnership (LTP) must 

allocate a liability in cases in which a 


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partner of an upper-tier partnership 

(UTP) is also a partner of the LTP and 

that partner bears the EROL with respect 

to the LTP’s liability. Under the 

proposed regulations, the LTP would be 

required to allocate the liability directly 

to the partner. 

One commenter, while 

acknowledging that the rule in the 

proposed regulations provides certainty 

and is administrable, expressed 

concerns that this rule could cause the 

partner in both the UTP and the LTP to 

recognize gain. The commenter 

recommended that the final regulations 

allow the LTP to allocate the liability in 

any reasonable manner between the 

partner and the UTP. The final 

regulations do not adopt this suggestion. 

The rule in the proposed regulations is 

the most administrable, especially in a 

case in which an LTP may not be aware 

that one of its partners is also a partner 

in a UTP that is removed from the LTP. 

Therefore, under the final regulations, 

an LTP must allocate the liability 

directly to the partner that bears the 

EROL with respect to the LTP’s liability. 

Section § 1.752–2(i)(2) of the final 

regulations also clarifies how the tiered 

partnership rule applies in a case in 

which there is overlapping EROL among 

unrelated partners as provided in 

§ 1.752–2(a)(2). Finally, the final 

regulations add an example to illustrate 

the application of the proportionality 

rule when there are tiered partnerships. 

Another commenter suggested that a 

gap might exist between §§ 1.704–2 and 

1.752–2 concerning partner nonrecourse 

deductions when a partner of a UTP 

(that is not also a partner of an LTP) 

bears the EROL for a liability of the LTP. 

Existing § 1.704–2(i) requires the 

partnership to allocate partner 

nonrecourse deductions to the partner 

that bears the EROL. Existing § 1.704– 

2(k)(5) treats an LTP’s liability that is 

treated as a UTP’s liability under 

§ 1.752–4(a) also as a liability of the 

UTP for purpose of applying the rules 

under § 1.704–2(i). Under existing 

§ 1.752–2(i), the LTP allocates its 

liability to the UTP when a partner of 

the UTP bears the EROL for the LTP’s 

liability. The commenter asserted that, 

although existing § 1.752–2(i) requires 

the LTP to allocate the liability to the 

UTP, existing § 1.704–2 does not 

explicitly direct the LTP to allocate 

partner nonrecourse deductions 

attributable to that liability to the UTP. 

Thus, in the commenter’s view, the 

existing rules do not treat the UTP as 

bearing the EROL for the LTP’s liability 

for purposes of § 1.704–2(i). Contrary to 

this commenter’s suggestion, existing 

§§ 1.704–2(i) and 1.704–2(k)(5) 

implicitly require an LTP to allocate 

partner nonrecourse deductions 

attributable to a liability of the LTP to 

a UTP if a partner in the UTP bears the 

EROL for the LTP’s liability. To 

eliminate any uncertainty, the final 

regulations add a sentence to § 1.704– 

2(k)(5) to clarify that a UTP is treated as 

bearing the EROL for an LTP’s liability 

that is treated as the UTP’s liability 

under § 1.752–4(a). Therefore, partner 

nonrecourse deductions attributable to 

the LTP’s liability are allocated to the 

UTP under § 1.704–2(i). 

III. General Issues of EROL 

As previously stated, existing § 1.752– 

2(a) generally provides that a partner’s 

share of a recourse partnership liability 

equals the portion of that liability, if 

any, for which the partner or related 

person bears the EROL. A partner bears 

the EROL for a partnership liability if 

the partner or related person has a 

payment obligation under § 1.752–2(b), 

is a lender as provided in § 1.752–2(c), 

guarantees payment of interest on a 

partnership nonrecourse liability as 

described in § 1.752–2(e), or pledges 

property as a security as provided in 

§ 1.752–2(h). In describing when a 

partner bears the EROL for a partnership 

liability, the proposed regulations 

inadvertently failed to include 

situations under § 1.752–2(e) and (h). A 

commenter also suggested that 

references to § 1.752–2(c) relating to 

when a partner or related person is the 

lender take into account a de minimis 

rule under § 1.752–2(d)(1). Existing 

§ 1.752–2(d)(1) provides that the general 

rule in § 1.752–2(c)(1) does not apply if 

a partner or related person whose 

interest (directly or indirectly through 

one or more partnerships and including 

the interest of any related person) in 

each item of partnership income, gain, 

loss, deduction, or credit for every 

taxable year that the partner is a partner 

in the partnership is 10 percent or less, 

makes a loan to the partnership that 

constitutes qualified nonrecourse 

financing within the meaning of section 

465(b)(6) (determined without regard to 

the type of activity financed). To 

incorporate the rules in § 1.752–2(d)(1), 

the commenter suggested that the final 

regulations broadly refer to § 1.752–2 

when describing situations that give rise 

to EROL instead of listing specific 

applicable paragraphs in § 1.752–2. 

The final regulations correct the 

oversight in the proposed regulations by 

listing in one section of the regulations 

all the situations under § 1.752–2 in 

which a person directly bears the EROL, 

including by taking into account the de 

minimis exceptions in § 1.752–2(d). A 

person directly bears the EROL if that 

person, and not a related person, meets 

the requirements of the listed situations. 

IV. Related Party Rules 

A. Constructive Ownership Rules 

Under existing § 1.752–4(b)(1), a 

person is related to a partner if the 

person and the partner bear a 

relationship to each other that is 

specified in section 267(b) or section 

707(b)(1) of the Code, except that ‘‘80 

percent or more’’ is substituted for 

‘‘more than 50 percent’’ in each of those 

sections, a person’s family is 

determined by excluding siblings, and 

section 267(e)(1) and (f)(1)(A) are 

disregarded. In determining whether a 

partner and a person bear a relationship 

to each other that is specified in section 

267(b) or section 707(b)(1), the 

constructive stock ownership rules in 

section 267(c) apply. See sections 267(c) 

and 707(b)(3). The proposed regulations 

would disregard the constructive stock 

ownership rules under section 267(c)(1) 

in determining whether to treat stock of 

a corporation owned, directly or 

indirectly, by or for a partnership as 

owned proportionately by or for its 

partners if the corporation is a lender 

under § 1.752–2(c) or has a payment 

obligation with respect to a liability of 

its partnership owner. The preamble to 

the proposed regulations explained that 

a partner’s EROL that is limited to the 

partner’s equity investment in the 

partnership should be treated differently 

than the risk of loss beyond that 

investment. 

Commenters agreed with the rationale 

underlying the proposed regulations 

and suggested that the final regulations 

disregard two other constructive 

ownership situations in determining 

relatedness under § 1.752–4(b)(1). First, 

commenters suggested that the final 

regulations also disregard section 

267(c)(1) in determining whether to 

treat a UTP’s direct or indirect interest 

in an LTP as owned proportionately by 

or for the UTP’s partners if the LTP is 

a lender or has a payment obligation 

with respect to a liability of the UTP. 

Commenters expressed the view that in 

this situation, like the one described in 

the proposed regulations, a partner 

should not be treated as bearing the 

EROL for a partnership liability merely 

as a result of the UTP’s investment in an 

LTP that has a payment obligation with 

respect to a liability of the UTP. 

Second, commenters suggested that 

the final regulations disregard section 

1563(e)(2) of the Code in determining 

relatedness under § 1.752–4(b)(1). For 

purposes of § 1.752–4(b)(1), a person is 

related to a partner if the two parties 

bear a relationship to each other as 


ddrumheller on DSK120RN23PROD with RULES1
Federal Register / Vol. 89, No. 231 / Monday, December 2, 2024 / Rules and Regulations 95111 

described in section 267(b)(3). Under 

section 267(b)(3), a corporate partner 

and another corporation that are 

members of the same controlled group 

(as defined in section 267(f)) are treated 

as related for purposes of § 1.752– 

4(b)(1). Section 267(f) gives ‘‘controlled 

group’’ the same meaning as in section 

1563(a). Under section 1563(a), a 

controlled group of corporations 

includes a parent-subsidiary controlled 

group and a brother-sister controlled 

group. Section 1563(e) provides 

attribution rules that apply in 

determining whether a corporation is a 

member of a parent-subsidiary 

controlled group or of a brother-sister 

controlled group. Specific to 

partnerships, section 1563(e)(2) 

provides that stock owned, directly or 

indirectly, by or for a partnership is 

considered as owned by any partner 

having an interest of 5 percent or more 

in either the capital or profits of the 

partnership in proportion to the 

partner’s interest in capital or profits, 

whichever is greater. Therefore, in 

applying the attribution rules under 

section 1563(e)(2), a corporate partner in 

a partnership could be treated as a 

member of a parent-subsidiary 

controlled group or of a brother-sister 

controlled group, and thus, related to a 

corporation in that group that is owned 

by the partnership. If the corporate 

subsidiary of the partnership has a 

payment obligation with respect to a 

liability of the partnership, the 

corporate partner is treated as bearing 

the EROL for that liability. Commenters 

recommended not treating the corporate 

partner as bearing the EROL merely as 

a result of applying the attribution rules 

under section 1563(e)(2) because the 

partner’s risk is limited to the 

investment in the partnership. 

The final regulations adopt these 

suggestions. Thus, in determining 

relatedness under § 1.752–4(b)(1), the 

final regulations disregard: (1) section 

267(c)(1) in determining whether a 

UTP’s interest in an LTP is owned 

proportionately by or for the UTP’s 

partners when an LTP directly bears the 

EROL for a liability of the UTP and (2) 

section 1563(e)(2) in determining 

whether a corporate partner in a 

partnership and a corporation owned by 

the partnership are members of the same 

controlled group when the corporation 

directly bears the EROL for a liability of 

the owner partnership. In both of these 

situations, a partner should not be 

treated as bearing the EROL when the 

partner’s risk is limited to the partner’s 

equity investment in the partnership. 

B. Related Partner Exception to Related 

Party Rules 

Under the proposed regulations, if a 

person who owns (directly or indirectly 

through one or more partnerships) an 

interest in a partnership is a lender or 

has a payment obligation with respect to 

a partnership liability, or portion 

thereof, then other persons owning 

interests directly or indirectly (through 

one or more partnerships) in that 

partnership would not be treated as 

related to that person for purposes of 

determining the EROL borne by each of 

them for the partnership liability, or 

portion thereof (related partner 

exception). 

One commenter recommended that 

the final regulations clarify the meaning 

of the phrase ‘‘not treated as related’’ as 

used in proposed examples illustrating 

the related partner exception. The 

phrase ‘‘not treated as related’’ is 

intended to mean that, under § 1.752– 

4(b)(1), the partner and the other person 

are not treated as bearing a relationship 

to each other that is specified in section 

267(b) or section 707(b)(1) (taking into 

account any applicable attribution 

rules). Accordingly, the phrase ‘‘not 

treated as related’’ should be broadly 

interpreted. For instance, in § 1.752– 

4(b)(5)(iii) of the final regulations, A 

wholly owns corporations X and Y. X 

and Y are members of Partnership, an 

entity treated as a partnership for 

Federal tax purposes. The partnership 

agreement provides that X and Y share 

equally in all items of income, gain, 

loss, deduction, and credit of 

Partnership. X owns 79 percent of Z, a 

corporation, and Y owns 21 percent of 

Z. Each of X and Z guarantees the entire 

amount of a liability of Partnership. 

Under this example, X and Y are not 

treated as related for purposes of 

determining the EROL borne by each of 

them for the partnership’s liability, and, 

because neither X nor Y owns an 80 

percent or more interest in Z, X and Y 

are not treated as related to Z under 

§ 1.752–4(b)(1). In other words, X and Y 

are not related to Z within the meaning 

of § 1.752–4(b)(1), which takes into 

account any applicable attribution rules. 

Another commenter suggested that 

the related partner exception should 

apply only to turn off relatedness so that 

the direct EROL borne by one partner is 

not attributed to another partner. This 

commenter recommended that the rule 

should not turn off the relationship 

between a partner that directly bears the 

EROL for a partnership liability and 

another partner for purposes of 

determining whether those partners are 

related to a non-partner that also bears 

EROL for the partnership’s liability. If 

the related partner exception did not 

apply in this situation, both partners 

would be treated as bearing the EROL 

for the partnership liability and share 

the liability under the proportionality 

rule. 

The proposed regulations would 

implement the result in IPO II v. 

Commissioner, 122 T.C. 295 (2004), 

which applied the related partner 

exception to turn off the relationship 

between the partners and allocated the 

entirety of a partnership’s liability to the 

partner that directly bore the EROL for 

the partnership’s liability despite a nonpartner related person also bearing the 

EROL. Therefore, the final regulations 

do not adopt this suggestion. 

C. Person Related to Multiple Partners 

(Multiple Partner Rule) 

The proposed regulations provide that 

if a person is a lender or has a payment 

obligation with respect to a partnership 

liability and is related to more than one 

partner, then those partners that are 

related to that person (related partners) 

share the liability equally. One 

commenter suggested that the multiple 

partner rule may be unnecessary and 

recommended that the final regulations 

only include the proportionality rule in 

proposed § 1.752–2(a) to address how to 

allocate EROL when there is 

overlapping EROL, including because 

multiple partners are related to a person 

with a payment obligation. The final 

regulations do not adopt this suggestion. 

The multiple partner rule is necessary 

because, without this rule, the partners 

might share EROL incorrectly. For 

example, corporations X, Y, and Z are 

partners in an entity treated as a 

partnership for Federal tax purposes. 

The partnership agreement provides 

that the partners share equally in all 

items of income, gain, loss, deduction, 

and credit of XYZ partnership. A, an 

individual, wholly owns X and Y. Z is 

an unrelated third party. Partnership 

borrows $1,000 from a bank and A and 

Z both guarantee the entire amount of 

the liability. Without the multiple 

partner rule, each of X and Y has $1,000 

of EROL from A’s $1,000 guarantee and 

Z has $1,000 of EROL from its 

guarantee. Each would be allocated onethird of the liability under the 

proportionality rule. In contrast, by 

applying the multiple partner rule, each 

of X and Y has $500 of EROL. When the 

proportionality rule is applied, X and Y 

are each allocated one-fourth of the 

liability and Z is allocated one-half of 

the liability. This is the correct result 

because there is one guarantee from A’s 

related group and one guarantee by Z. 

The commenter also recommended 

that if the final regulations retain the 


ddrumheller on DSK120RN23PROD with RULES1
95112 Federal Register / Vol. 89, No. 231 / Monday, December 2, 2024 / Rules and Regulations 

multiple partner rule, the final 

regulations allow the related partners to 

agree among themselves how to allocate 

the liability, provided that the allocation 

is consistently applied. The commenter 

explained that allowing related partners 

to choose among themselves who 

receives the allocation could prevent 

related partners from recognizing an 

uneconomic gain. To address the 

commenter’s underlying concern, the 

final regulations under § 1.752–4(b)(3) 

treat related partners as bearing the 

EROL for a partnership liability in 

proportion to each related partner’s 

interest in partnership profits. 

V. Ordering Rule 

The proposed regulations had 

different rules regarding allocations of 

partnership liabilities for related and 

unrelated parties. In particular, the 

proportionality rule in proposed 

§ 1.752–2(a) addressed when partners 

have overlapping EROL, the related 

partner exception in proposed § 1.752– 

4(b)(2) described when partners with 

direct EROL are not treated as related to 

other partners, and the multiple partner 

rule in proposed § 1.752–4(b)(3) 

provided how EROL is shared when 

multiple partners are related to a person 

that is a lender or has a payment 

obligation. One commenter expressed 

confusion regarding how these rules 

interact and suggested that the final 

regulations include an ordering rule. 

The final regulations adopt this 

suggestion. An ordering rule is 

warranted to clarify how the 

proportionality rule interacts with the 

multiple partner rule and how the 

multiple partner rule interacts with the 

related partner exception. Therefore, 

under § 1.752–4(e), the first step is to 

determine whether any partner (direct 

or indirect) directly bears the EROL for 

the partnership liability and apply the 

related partner exception in § 1.752– 

4(b)(2). After applying the related 

partner exception (if applicable), the 

next step is to determine the amount of 

EROL each partner is considered to bear 

under § 1.752–4(b)(3) when multiple 

partners are related to a person that 

directly bears the EROL for a 

partnership liability. The final step is to 

apply the proportionality rule in 

§ 1.752–2(a)(2) to determine the amount 

of EROL that each partner is considered 

to bear when the amount of EROL that 

multiple partners bear exceed the 

amount of the partnership liability. The 

final regulations include an example to 

illustrate the ordering rule in § 1.752– 

4(e). 

VI. Liquidating Distributions of 

Partnership Interests 

The preamble to the proposed 

regulations requested comments 

concerning the proper treatment of 

liabilities when a UTP bears the EROL 

for an LTP’s liability and distributes, in 

a liquidating distribution, its interest in 

the LTP to one of its partners, but the 

transferee partner does not bear the 

EROL. As a result of this transaction, the 

LTP’s recourse liability became a 

nonrecourse liability for purposes of 

section 752. The preamble requested 

comments specifically on the timing of 

the liability reallocation relative to the 

transaction that caused the liability to 

change from recourse to nonrecourse. 

The Treasury Department and the IRS 

received thoughtful comments regarding 

this issue in response to the request for 

comments and are continuing to 

consider whether additional guidance 

regarding the issue is warranted. 

VII. Applicability Date 

Under the proposed regulations the 

rules would apply to any liability 

incurred or assumed by a partnership on 

or after the date the regulations are 

published as final regulations in the 

Federal Register. Commenters suggested 

that the final regulations allow a 

taxpayer to apply the final regulations to 

all liabilities incurred or assumed by a 

partnership (even liabilities incurred or 

assumed before the date of publication 

of these regulations), with respect to all 

returns, including amended returns, 

filed after the date these regulations are 

published. The final regulations adopt 

this suggestion, but clarify that a 

partnership must apply these rules 

consistently to all of its partnership 

liabilities and may not pick and choose 

which rules apply to them. Allowing 

taxpayers to apply these regulations 

before the publication date will provide 

greater certainty for partnerships and 

their partners and allow uniform rules 

to apply to all partnership liabilities. As 

a result, these final regulations allow a 

partnership to apply the rules to all 

liabilities with respect to returns filed 

on or after December 2, 2024, provided 

the partnership consistently applies all 

the rules in these final regulations to 

those liabilities. 

A commenter also suggested that the 

final regulations permit partnership 

liabilities that are modified or 

refinanced and payment obligations that 

are modified to continue to be subject to 

the provisions of the regulations in 

effect prior to the applicability date of 

the final regulations, but only to the 

extent of the amount and duration of the 

pre-modification (or refinancing) 

liability or payment obligation. The 

commenter identified § 1.707–5(c) as a 

model for a special refinancing rule. The 

commenter noted that without such a 

rule, the applicability date in the 

proposed regulations might discourage 

partnerships from refinancing debts or 

subject partners to unexpected adverse 

results. 

The final regulations adopt this 

suggestion. Accordingly, the final 

regulations do not apply to refinanced 

debts to the extent of the amount and 

duration of the pre-modification 

liability. Instead, the rules in the 

regulations as in effect prior to 

December 2, 2024, continue to apply to 

those liabilities. For example, assume a 

partnership borrowed $1,000 on January 

28, 2024, from Bank, and X, a person 

related to Partners A and B, guaranteed 

the entire amount of that liability. 

Further assume that this liability was 

refinanced after December 2, 2024 so 

that the liability is now $2,000 and X 

continues to guarantee the entire 

amount of the liability. The rules in 

effect prior to December 2, 2024 would 

continue to apply to the $1,000 of premodification liability and X’s guarantee 

of the $1,000 when determining which 

partner bears the EROL. The rules in 

effect after December 2, 2024 would 

apply to the remaining $1,000. 

Special Analyses 

I. Paperwork Reduction Act 

The Paperwork Reduction Act of 1995 

(44 U.S.C. 3501–3520) (PRA) generally 

requires that a Federal agency obtain the 

approval of the Office of Management 

and Budget before collecting 

information from the public, whether 

such collection of information is 

mandatory, voluntary, or required to 

obtain or retain a benefit. These 

regulations do not impose a collection 

of information and, therefore, the PRA 

does not apply. 

II. Regulatory Flexibility Act 

The Treasury Department and the IRS 

have determined the rule will not have 

a significant economic impact on a 

substantial number of small entities. 

Although the rules affect small entities, 

data is not readily available about the 

number of taxpayers affected. Section 

752 affects the allocation of partnership 

liabilities among partners in a 

partnership. The economic impact of 

these regulations is not likely to be 

significant, because the regulations will 

make it easier for taxpayers to comply 

with section 752. Pursuant to the 

Regulatory Flexibility Act (5 U.S.C. 

chapter 6), the Secretary hereby certifies 

that these regulations will not have a 


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significant economic impact on a 

substantial number of small entities. 

Pursuant to section 7805(f) of the 

Code, the proposed regulations that 

preceded these final regulations were 

submitted to the Chief Counsel for the 

Office of Advocacy of the Small 

Business Administration (SBA) for 

comment on its impact on small 

business. The Chief Counsel for the 

Office of Advocacy of the SBA did not 

provide any comments on the proposed 

regulations. 

III. Unfunded Mandates Reform Act 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 requires 

that agencies assess anticipated costs 

and benefits and take certain other 

actions before issuing a final rule that 

includes any Federal mandate that may 

result in expenditures in any one year 

by a State, local, or Tribal government, 

in the aggregate, or by the private sector, 

of $100 million in 1995 dollars, updated 

annually for inflation. This rule does 

not include any Federal mandate that 

may result in expenditures by State, 

local, or Tribal governments, or by the 

private sector in excess of that 

threshold. 

IV. Executive Order 13132: Federalism 

Executive Order 13132 (Federalism) 

prohibits an agency from publishing any 

rule that has federalism implications if 

the rule either imposes substantial, 

direct compliance costs on State and 

local governments, and is not required 

by statute, or preempts State law, unless 

the agency meets the consultation and 

funding requirements of section 6 of the 

Executive order. These final regulations 

do not have federalism implications and 

do not impose substantial direct 

compliance costs on state and local 

governments or preempt State law 

within the meaning of the Executive 

order. 

V. Regulatory Planning and Review 

Pursuant to the Memorandum of 

Agreement, Review of Treasury 

Regulations under Executive Order 

12866 (June 9, 2023), tax regulatory 

actions issued by the IRS are not subject 

to the requirements of section 6 of 

Executive Order 12866, as amended. 

Therefore, a regulatory impact 

assessment is not required. 

VI. Congressional Review Act 

Pursuant to the Congressional Review 

Act (5 U.S.C. 801 et seq.), the Office of 

Information and Regulatory Affairs has 

designated this rule as not a ‘‘major 

rule,’’ as defined by 5 U.S.C. 804(2). 

Statement of Availability of IRS 

Documents 

Guidance cited in this preamble is 

published in the Internal Revenue 

Bulletin and is available from the 

Superintendent of Documents, U.S. 

Government Publishing Office, 

Washington, DC 20402, or by visiting 

the IRS website at https://www.irs.gov. 

Drafting Information 

The principal author of these 

regulations is Caroline E. Hay, Office of 

the Associate Chief Counsel 

(Passthroughs and Special Industries). 

However, other personnel from the 

Treasury Department and the IRS 

participated in their development. 

List of Subjects in 26 CFR Part 1 

Income taxes, Reporting and 

recordkeeping requirements. 

Adoption of Amendments to the 

Regulations 

Accordingly, 26 CFR part 1 is 

amended as follows: 

PART 1—INCOME TAXES 

■ Paragraph 1. The authority citation 

for part 1 continues to read in part as 

follows: 

Authority: 26 U.S.C. 7805 * * * 

■ Par. 2. Section 1.704–2 is amended 

by: 

■ 1. Adding a sentence after the first 

sentence of paragraph (k)(5). 

■ 2. Adding paragraph (l)(1)(vi). 

The additions read as follows: 

§1.704–2 Allocations attributable to 

nonrecourse liabilities. 

* * * * * 

(k) * * * 

(5) * * * In addition, for purposes of 

applying paragraph (i) of this section, 

the upper-tier partnership is treated as 

bearing the economic risk of loss for the 

lower-tier partnership’s liabilities that 

are treated as the upper-tier 

partnership’s liabilities under § 1.752– 

4(a). * * * 

(l) * * * 

(1) * * * 

(vi) The second sentence of paragraph 

(k)(5) of this section applies on or after 

December 2, 2024. 

* * * * * 

■ Par. 3. Section 1.752–0 is amended 

by: 

■ 1. In § 1.752–2: 

■ i. Revising the entry (a); and 

■ ii. Adding entries (a)(1) through (3) 

and (i)(1) through (3). 

■ 2. In § 1.752–4: 

■ i. Revising the entry (b)(2); 

■ ii. Removing the entries (b)(2)(i) 

though (iii); 

■ iii. Redesignating the entries (b)(2)(iv), 

(b)(2)(iv)(A) and (B) as (b)(4), (b)(4)(i) 

and (ii), respectively; 

■ iv. Removing the entry (b)(2)(iv)(C); 

and 

■ v. Adding the entries (b)(3) and (5), 

(e), and (f). 

The revisions and additions read as 

follows: 

1.752–0 Table of contents. 

* * * * * 

§ 1.752–2 Partner’s share of recourse 

liabilities. 

(a) Partner’s share of recourse liabilities. 

(1) In general. 

(2) Overlapping economic risk of loss. 

(3) Direct economic risk of loss. 

* * * * * 

(i) * * * 

(1) In general. 

(2) Coordination with overlapping 

economic risk of loss. 

(3) Example. 

* * * * * 

§ 1.752–4 Special rules. 

* * * * * 

(b) * * * 

(2) Related partner exception. 

(3) Person related to more than one partner. 

* * * * * 

(5) Examples. 

* * * * * 

(e) Ordering rule. 

(f) Example. 

* * * * * 

■ Par. 4. Section 1.752–2 is amended 

by: 

■ 1. Revising paragraphs (a). 

■ 2. Revising the headings for 

paragraphs (f)(1) through (8). 

■ 3. Revising paragraphs (f)(9), and (i). 

■ 4. In the first sentence of paragraph 

(l)(1), removing the language 

‘‘Paragraphs (a)’’ and adding the 

language ‘‘Paragraphs (a)(1)’’ in its 

place. 

■ 5. In the first sentence of paragraph 

(l)(3), removing the language ‘‘§ 1.752– 

2(a)’’ and adding ‘‘§ 1.752–2(a)(1)’’ in its 

place. 

■ 6. Adding paragraph (l)(4). 

The revisions and addition read as 

follows: 

§ 1.752–2 Partner’s share of recourse 

liabilities. 

(a) Partner’s share of recourse 

liabilities—(1) In general. A partner’s 

share of recourse partnership liability 

equals the portion of that liability, if 

any, for which the partner or related 

person bears the economic risk of loss. 

The determination of the extent to 

which a partner bears the economic risk 

of loss for a partnership liability is made 

under the rules in paragraphs (b) 

through (k) of this section. 

(2) Overlapping economic risk of loss. 

For purposes of determining a partner’s 


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share of a recourse partnership liability, 

the amount of the partnership liability 

is taken into account only once. If the 

aggregate amount of the economic risk 

of loss that all partners are determined 

to bear for a partnership liability (or 

portion thereof) under paragraph (a)(1) 

of this section (without regard to this 

paragraph (a)(2)) exceeds the amount of 

such liability (or portion thereof), then 

the economic risk of loss borne by each 

partner for such liability equals the 

amount determined by multiplying— 

(i) The amount of such liability (or 

portion thereof) by 

(ii) The fraction obtained by dividing 

the amount of the economic risk of loss 

that such partner is determined to bear 

for that liability (or portion thereof) 

under paragraph (a)(1) of this section, by 

the sum of such amounts for all 

partners. 

(3) Direct economic risk of loss. For 

purposes of this section and § 1.752–4, 

a person directly bears the economic 

risk of loss for a partnership liability if 

that person has a payment obligation 

under paragraph (b) of this section 

(except as provided in paragraph (d)(2) 

of this section for certain partner 

guarantees), is a lender as provided in 

paragraph (c) of this section (except as 

provided in paragraph (d)(1) of this 

section for certain partner loans), 

guarantees payment of interest on a 

partnership nonrecourse liability as 

described in paragraph (e) of this 

section, or pledges property as a 

security as provided in paragraph (h) of 

this section. 

* * * * * 

(f) * * * 

(1) Example 1. Determining when a 

partner bears the economic risk of loss. 

* * * 

(2) Example 2. Recourse liability; 

deficit restoration obligation. * * * 

(3) Example 3. Guarantee by limited 

partner; partner deemed to satisfy 

obligation. * * * 

(4) Example 4. Partner guarantee with 

right of subrogation. * * * 

(5) Example 5. Bifurcation of 

partnership liability; guarantee of part 

of nonrecourse liability. * * * 

(6) Example 6. Wrapped debt. * * * 

(7) Example 7. Guarantee of interest 

by partner treated as part recourse and 

part nonrecourse. * * * 

(8) Example 8. Continent obligation 

not recognized. * * * 

(9) Example 9. Overlapping economic 

risk of loss. (i) A and B are unrelated 

equal members of limited liability 

company, AB. AB is treated as a 

partnership for Federal tax purposes. 

AB borrows $1,000 from Bank. A 

guarantees payment for the entire 

amount of AB’s $1,000 liability and B 

guarantees payment of up to $500 of the 

liability, if any amount of the full $1,000 

liability is not recovered by Bank. Under 

paragraph (b)(1) of this section, A bears 

$1,000 of economic risk of loss for AB’s 

liability and B bears $500 of economic 

risk of loss for AB’s liability. A and B 

have not entered into a loss-sharing 

agreement addressing their status as coguarantors, and local law does not 

clearly establish responsibility as 

between them for the liability. 

(ii) Because the aggregate amount of 

A’s and B’s economic risk of loss under 

paragraph (a)(1) of this section ($1,500) 

exceeds the amount of AB’s liability 

($1,000), the economic risk of loss borne 

by each of A and B is determined under 

paragraph (a)(2) of this section. Under 

paragraph (a)(2) of this section, A’s 

economic risk of loss equals $1,000 

multiplied by $1,000/$1,500, or $667, 

and B’s economic risk of loss equals 

$1,000 multiplied by $500/$1,500, or 

$333. 

* * * * * 

(i) Treatment of recourse liabilities in 

tiered partnerships—(1) In general. If a 

partnership (upper-tier partnership) 

owns (directly or indirectly through one 

or more partnerships) an interest in 

another partnership (lower-tier 

partnership), the liabilities of the lowertier partnership are allocated to the 

upper-tier partnership in an amount 

equal to the sum of the following— 

(i) The amount of liabilities with 

respect to which the upper-tier 

partnership directly bears the economic 

risk of loss as described in paragraph 

(a)(3) of this section; and 

(ii) The amount of any other liabilities 

with respect to which a partner of the 

upper-tier partnership bears the 

economic risk of loss, provided the 

partner is not also a partner in the 

lower-tier partnership. 

(2) Coordination with overlapping 

economic risk of loss. A lower-tier 

partnership takes into account 

paragraph (a)(2) of this section prior to 

the application of this paragraph (i). 

(3) Example. (i) A and B (which is 

unrelated to A) contribute $810,000 and 

$90,000 to UTP, a limited liability 

company treated as a partnership for 

Federal tax purposes, in exchange for a 

90 percent and 10 percent interest in 

UTP, respectively. UTP contributes the 

$900,000 to LTP, a partnership for 

Federal tax purposes, in exchange for a 

90 percent interest in LTP and A 

contributes $100,000 directly to LTP in 

exchange for a 10 percent interest in 

LTP. UTP and LTP both reported losses 

in their initial years that reduced the 

partners’ bases in UTP and LTP to zero. 

LTP borrows $10 million. UTP and LTP 

both had no income in the year at issue. 

At the request of the lender, A and B 

both provide their personal guaranty for 

the entire amount of LTP’s liability. 

(ii) Under paragraph (b)(1) of this 

section, A has $10 million of economic 

risk of loss for LTP’s liability and B has 

$10 million of economic risk of loss for 

LTP’s liability. Under paragraph (i)(2) of 

this section, LTP takes into account 

paragraph (a)(2) of this section prior to 

determining the amount of liabilities 

allocated to UTP under paragraph (i)(1) 

of this section. Under paragraph (a)(2) of 

this section, A is considered to bear $5 

million (($10 million/$20 million) × $10 

million) of economic risk of loss and B 

is considered to also bear $5 million 

(($10 million/$20 million) × $10 

million) of economic risk of loss for 

LTP’s liability. Pursuant to paragraph 

(a)(1) of this section, LTP allocates $5 

million to A for A’s direct interest in 

LTP’s liability. Under paragraph (i)(1) of 

this section, LTP allocates $5 million to 

UTP ($5 million attributable to B’s 

economic risk of loss for LTP’s liability). 

(iii) Pursuant to § 1.752–4(a), UTP 

treats its share of LTP’s liability ($5 

million) as a liability of UTP. Because 

A bears the economic risk of loss for 

LTP’s liability and is a partner in LTP, 

under paragraph (i)(1)(ii) of this section, 

UTP’s share of LTP’s liability ($5 

million) only includes the amount of 

LTP’s liabilities with respect to which B 

bears the economic risk of loss. 

Therefore, under paragraph (a)(1) of this 

section, UTP allocates $5 million of 

UTP’s share of LTP’s liability to B and 

none to A. 

* * * * * 

(l) * * * 

(4) Paragraphs (a)(2) and (3), (f)(9), 

and (i) of this section apply to liabilities 

incurred or assumed by a partnership on 

or after December 2, 2024, other than 

liabilities incurred or assumed by a 

partnership pursuant to a written 

binding contract in effect prior to that 

date. To the extent that the proceeds of 

a partnership liability (refinancing debt) 

are allocable under the rules of § 1.163– 

8T to payments discharging all or part 

of any other liability (pre-modification 

liability) of that partnership, the 

refinancing debt will be treated as 

though it was incurred or assumed by 

the partnership prior to December 2, 

2024, to the extent of the amount and 

duration of the pre-modification 

liability. A partnership may apply 

paragraphs (a)(2) and (3), (f)(9), and (i) 

of this section to all of its liabilities 

(including liabilities incurred or 

assumed by a partnership prior to 

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on or after December 2, 2024 provided 

the partnership consistently applies all 

the rules in paragraphs (a)(2) and (3), 

(f)(9), and (i) of this section and § 1.752– 

4(b)(1)(iv) and (v), (b)(2) and (3), (b)(5)(i) 

through (iv), (e), and (f) to those 

liabilities. 

■ Par. 5. Section 1.752–4 is amended 

by: 

■ 1. In paragraph (b)(1)(i), removing the 

language ‘‘sections;’’ and adding the 

language ‘‘sections.’’ in its place. 

■ 2. In paragraph (b)(1)(ii), removing the 

language ‘‘sisters; and’’ and adding the 

language ‘‘sisters.’’ in its place. 

■ 3. Adding paragraphs (b)(1)(iv) and 

(v). 

■ 4. Revising paragraph (b)(2). 

■ 5. Adding paragraphs (b)(3) through 

(5), (e), and (f). 

The additions and revision read as 

follows: 

§ 1.752–4 Special rules. 

* * * * * 

(b) * * * 

(1) * * * 

(iv) Disregard section 267(c)(1) in 

determining whether— 

(A) Stock of a corporation owned, 

directly or indirectly, by or for a 

partnership is considered as being 

owned proportionately by or for its 

partners when the corporation directly 

bears the economic risk of loss as 

described in § 1.752–2(a)(3) for a 

liability of the partnership; and 

(B) A capital interest or a profits 

interest in a partnership (lower-tier 

partnership) owned, directly or 

indirectly, by or for a partnership 

(upper-tier partnership) is considered as 

being owned proportionately by or for 

the upper-tier partnership’s partners 

when the lower-tier partnership directly 

bears the economic risk of loss as 

described in § 1.752–2(a)(3) for a 

liability of the upper-tier partnership. 

(v) Disregard section 1563(e)(2) in 

determining whether a corporate partner 

and a corporation are members of the 

same controlled group (as defined in 

section 267(f)) under section 267(b)(3) 

when the corporation directly bears the 

economic risk of loss as described in 

§ 1.752–2(a)(3) for a liability of the 

partnership. 

(2) Related partner exception. 

Notwithstanding paragraph (b)(1) of this 

section (which defines related person), 

if a person who owns (directly or 

indirectly through one or more 

partnerships) an interest in a 

partnership directly bears the economic 

risk of loss as described in § 1.752– 

2(a)(3) for a partnership liability, or 

portion thereof, then other persons 

owning interests directly or indirectly 

(through one or more partnerships) in 

that partnership are not treated as 

related to that person for purposes of 

determining the economic risk of loss 

borne by each of them for such 

partnership liability, or portion thereof. 

This paragraph (b)(2) does not apply 

when determining a partner’s interest 

under the de minimis rules in § 1.752– 

2(d) and (e). 

(3) Person related to more than one 

partner. For purposes of determining a 

partner’s economic risk of loss for a 

partnership liability, or a portion 

thereof, when a person who directly 

bears the economic risk of loss as 

described in § 1.752–2(a)(3) for the 

partnership liability is related to more 

than one partner under paragraph (b)(1) 

of this section, each partner that is 

related to such person is considered to 

bear the economic risk of loss for the 

partnership liability, or portion thereof, 

in proportion to the partner’s interest in 

partnership profits. 

(4) Special rule where entity 

structured to avoid related person 

status—(i) In general. If— 

(A) A partnership liability is owed to 

or guaranteed by another entity that is 

a partnership, an S corporation, a C 

corporation, or a trust; 

(B) A partner or related person owns 

(directly or indirectly) a 20 percent or 

more ownership interest in the other 

entity; and 

(C) A principal purpose of having the 

other entity act as a lender or guarantor 

of the liability was to avoid the 

determination that the partner that owns 

the interest bears the economic risk of 

loss for federal income tax purposes for 

all or part of the liability; then the 

partner is treated as holding the other 

entity’s interest as a creditor or 

guarantor to the extent of the partner’s 

or related person’s ownership interest in 

the entity. 

(ii) Ownership interest. For purposes 

of paragraph (b)(4)(i) of this section, a 

person’s ownership interest in— 

(A) A partnership equals the partner’s 

highest percentage interest in any item 

of partnership loss or deduction for any 

taxable year; 

(B) An S corporation equals the 

percentage of the outstanding stock in 

the S corporation owned by the 

shareholder; 

(C) A C corporation equals the 

percentage of the fair market value of 

the issued and outstanding stock owned 

by the shareholder; and 

(D) A trust equals the percentage of 

the actuarial interests owned by the 

beneficial owner of the trust. 

(5) Examples. The following examples 

illustrate the principles of paragraph (b) 

of this section. 

(i) Example 1: Person related to more 

than one partner. A, an individual, 

owns 100 percent of X, a corporation. X 

owns 100 percent of Y, a corporation. A 

owns a 40 percent capital and profits 

interest and X owns a 60 percent capital 

and profits interest in P, a limited 

liability company treated as a 

partnership for Federal tax purposes. P 

borrows $1,000 from Bank. Y guarantees 

payment of the entire $1,000 debt owed 

to Bank. A and X do not directly bear 

the economic risk of loss as described in 

§ 1.752–2(a)(3) for the liability. 

Therefore, paragraph (b)(2) of this 

section does not apply for purposes of 

determining the economic risk of loss 

borne by A and X. Under paragraph 

(b)(1) of this section, Y is related to A 

and X. Therefore, under paragraph (b)(3) 

of this section, A bears the economic 

risk of loss of $400 and X bears the 

economic risk of loss of $600 for the 

$1,000 liability. 

(ii) Example 2: Related partner 

exception. A, an individual, owns 100 

percent of two corporations, X and Y. A 

and Y are members of P, a limited 

liability company treated as a 

partnership for Federal tax purposes. P 

borrows $1,000 from Bank. Each of A 

and X guarantees payment of the entire 

$1,000 debt owed to Bank. A and Y are 

not treated as related to each other 

pursuant to paragraph (b)(2) of this 

section because A directly bears the 

economic risk of loss as described in 

§ 1.752–2(a)(3) for the $1,000 liability. Y 

is therefore not treated as related to X. 

Because A is the only partner that bears 

the economic risk of loss for P’s $1,000 

liability, A’s share of the liability is 

$1,000 under § 1.752–2(a)(1). 

(iii) Example 3: Related partner 

exception. A, an individual, owns 100 

percent of two corporations, X and Y. X 

owns 79 percent of a corporation, Z, and 

Y owns the remaining 21 percent of Z. 

X and Y are members of P, a limited 

liability company treated as a 

partnership for Federal tax purposes. 

The partnership agreement provides 

that X and Y share equally in all items 

of income, gain, loss, deduction, and 

credit of P. P borrows $2,000 from Bank. 

Each of X and Z guarantees payment of 

the entire $2,000 debt owed to Bank. X 

directly bears the economic risk of loss 

as described in § 1.752–2(a)(3) for P’s 

$2,000 liability; therefore, paragraph 

(b)(2) of this section applies and X and 

Y are not treated as related for purposes 

of determining the economic risk of loss 

borne by each of them for P’s $2,000 

liability. Because X and Y are not 

treated as related and neither owns an 

80 percent or more interest in Z, neither 

X nor Y is treated as related to Z under 

paragraph (b)(1) of this section. Because 


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X bears the economic risk of loss for P’s 

$2,000 liability, X’s share of the liability 

is $2,000 under § 1.752–2(a)(1). 

(iv) Example 4: Related partner 

exception and person related to more 

than one partner. Same facts as in 

paragraph (b)(5)(iii) of this section 

(Example 3), but X guarantees payment 

of up to $1,200 of the debt owed to Bank 

if any amount of the full $2,000 is not 

recovered by Bank and Z guarantees 

payment of $2,000. Pursuant to 

paragraph (b)(2) of this section, X and Y 

are not treated as related to the extent 

of X’s $1,200 guarantee because X 

directly bears the economic risk of loss 

as described in § 1.752–2(a)(3) for 

$1,200 of P’s $2,000 liability. X’s share 

of the liability is $1,200 under § 1.752– 

2(a)(1). In addition, because paragraph 

(b)(2) of this section does not apply to 

the remaining portion of the liability 

that X did not guarantee, X and Y are 

treated as related for purposes of the 

remaining $800 of the liability pursuant 

to paragraph (b)(1) of this section. 

Therefore, Z is treated as related to X 

and Y under paragraph (b)(1) of this 

section. Pursuant to paragraph (b)(3) of 

this section, because X and Y each has 

a 50 percent interest in all items of 

income, gain, loss, deduction, and credit 

of P, X and Y each bear the economic 

risk of loss for $400 of the remaining 

$800 liability, and thus each has a $400 

share of the liability under § 1.752– 

2(a)(1). In sum, X’s share of P’s $2,000 

liability is $1,600 ($1,200 plus $400) 

and Y’s share of P’s $2,000 liability is 

$400. 

(v) Example 5: Entity structured to 

avoid related person status. A, B, and C 

form a general partnership, ABC. A, B, 

and C are equal partners, each 

contributing $1,000 to the partnership. 

A and B want to loan money to ABC and 

have the loan treated as nonrecourse for 

purposes of section 752. A and B form 

partnership AB to which each 

contributes $50,000. A and B share 

losses equally in partnership AB. 

Partnership AB loans partnership ABC 

$100,000 on a nonrecourse basis 

secured by the property ABC buys with 

the loan. Under these facts and 

circumstances, A and B bear the 

economic risk of loss with respect to the 

partnership liability equally based on 

their percentage interest in losses of 

partnership AB. 

* * * * * 

(e) Ordering rule. In determining a 

partner’s share of a recourse partnership 

liability, the rules in paragraph (b)(2) of 

this section, if applicable, apply before 

the rules in paragraph (b)(3) of this 

section. The rules in paragraph (b)(3) of 

this section apply before the rules in 

§ 1.752–2(a)(2). 

(f) Example. The following example 

illustrates the application of paragraph 

(e) of this section. 

(1) Facts. A, an individual, owns 100 

percent of two corporations, X and Y. X, 

Y, and Z, a corporation, are members of 

P, a limited liability company treated as 

a partnership for Federal tax purposes. 

The partnership agreement provides 

that the partners share equally in all 

items of income, gain, loss, deduction, 

and credit of P. Z is not related to A, X, 

or Y. P borrows $1,000 from Bank. Each 

of A, X, and Z guarantees payment for 

the entire amount of P’s $1,000 liability. 

Each of A, X, and Z has a payment 

obligation of $1,000 under § 1.752–2(b) 

for P’s $1,000 liability. 

(2) Analysis. (i) Under paragraph (e) of 

this section, first apply the rules under 

paragraph (b)(2) of this section, then 

apply the rules under paragraph (b)(3) of 

this section, and finally apply the rules 

under § 1.752–2(a)(2) to determine how 

to allocate P’s $1,000 liability among X, 

Y, and Z under § 1.752–2(a)(1). Under 

paragraph (b)(2) of this section, X and Y 

are not treated as related to each other 

with respect to X’s payment obligation 

for the $1,000 liability because X 

directly bears the economic risk of loss 

as described in § 1.752–2(a)(3). 

Therefore, X is treated as bearing $1,000 

of the economic risk of loss for P’s 

liability. 

(ii) Because the rules in paragraph 

(b)(2) of this section do not affect A’s 

relationship to X and Y, X and Y are 

related to A under paragraph (b)(1) of 

this section. Because A is related to both 

X and Y, each of X and Y is considered 

to bear the economic risk of loss for P’s 

liability in proportion to X’s and Y’s 

interest in P. Because they both have a 

one-third interest in all items of income, 

gain, loss, deduction, and credit of P, 

each of X and Y bears $500 of economic 

risk of loss under paragraph (b)(3) of 

this section with respect to A’s $1,000 

payment obligation for P’s liability. 

(iii) Z has a payment obligation with 

respect to the $1,000 liability under 

§ 1.752–2(b)(1) and thus, bears $1,000 of 

the economic risk of loss for P’s 

liability. 

(iv) After applying paragraphs (b)(2) 

and (3) of this section, X is considered 

to bear $1,500 of the economic risk of 

loss for P’s liability and Y is considered 

to bear $500 of the economic risk of loss 

for P’s liability. Z is considered to bear 

$1,000 of the economic risk of loss for 

P’s liability. Because the aggregate 

amount of X’s, Y’s, and Z’s economic 

risk of loss ($3,000) exceeds the amount 

of P’s liability ($1,000), the economic 

risk of loss borne by X, Y, and Z is 

determined under § 1.752–2(a)(2). 

Under § 1.752–2(a)(2), X’s economic risk 

of loss is $500 (($1,500/$3,000) × 

$1,000), Y’s economic risk of loss is 

$167 (($500/$3,000) × $1,000), and Z’s 

economic risk of loss is $333 (($1,000/ 

$3,000) × $1,000). Therefore, under 

§ 1.752–2(a)(1), X’s share of P’s liability 

is $500, Y’s share is $167, and Z’s share 

is $333. 

■ Par. 6. Section 1.752–5 is amended 

by: 

■ 1. Revising the section heading. 

■ 2. Adding three sentences after the 

first sentence in paragraph (a). 

■ 3. In paragraph (a), removing the word 

‘‘However’’ at the beginning of the fifth 

sentence and adding ‘‘In addition’’ in its 

place. 

The revision and additions read as 

follows: 

§ 1.752–5 Applicability dates and 

transition rules. 

(a) * * * However, § 1.752–4(b)(1)(iv) 

and (v), (b)(2) and (3), (b)(5)(i) through 

(iv), (e), and (f) apply to any liability 

incurred or assumed by a partnership on 

or after December 2, 2024, other than a 

liability incurred or assumed by a 

partnership pursuant to a written 

binding contract in effect prior to that 

date. To the extent that the proceeds of 

a partnership liability (refinancing debt) 

are allocable under the rules of § 1.163– 

8T to payments discharging all or part 

of any other liability (pre-modification 

liability) of that partnership, the 

refinancing debt will be treated as 

though it was incurred or assumed by 

the partnership prior to December 2, 

2024, to the extent of the amount and 

duration of the pre-modification 

liability. A partnership may apply 

§ 1.752–4(b)(1)(iv) and (v), (b)(2) and (3), 

(b)(5)(i) through (iv), (e), and (f) to all of 

its liabilities (including liabilities 

incurred or assumed by a partnership 

prior to December 2, 2024), for any 

return filed on or after December 2, 2024 

provided the partnership consistently 

applies all the rules in § 1.752–2(a)(2) 

and (3), (f)(9), and (i) and § 1.752– 

4(b)(1)(iv) and (v), (b)(2) and (3), (b)(5)(i) 

through (iv), (e), and (f) to those 

liabilities. * * * 

* * * * * 

Douglas W. O’Donnell, 

Deputy Commissioner. 

Approved: October 30, 2024. 

Aviva R. Aron-Dine, 

Deputy Assistant Secretary of the Treasury 

(Tax Policy). 

[FR Doc. 2024–27840 Filed 11–29–24; 8:45 am] 

BILLING CODE 4830–01–P 


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