Document Headings

                    Document headings vary by document type but may contain                    the following:                  
                -                       the agency or agencies that issued and signed a document                    
                -                       the number of the CFR title and the number of each part                      the document amends, proposes to amend, or is directly                      related to                    
                -                       the agency docket number / agency internal file number                    
                -                       the RIN which identifies each regulatory action listed in                      the Unified Agenda of Federal Regulatory and Deregulatory                      Actions                    

                    See the                                          Document Drafting Handbook                                        for more details.                  

###### Department of the Treasury

###### Internal Revenue Service 

          - 26 CFR Part 1 
          - [REG-149519-03] 
          - RIN 1545-BC63 

# AGENCY:

Internal Revenue Service (IRS), Treasury. 

# ACTION:

Withdrawal of notice of proposed rulemaking. 

# SUMMARY:

This document withdraws proposed regulations relating to the treatment of transactions between a partnership and its partners as disguised sales of partnership interests between the partners under section 707(a)(2)(B) of the Internal Revenue Code. The withdrawal affects partnerships and their partners. 

# FOR FURTHER INFORMATION CONTACT:

Deane M. Burke or Allison R. Carmody, (202) 622-3070 (not a toll-free number). 

# SUPPLEMENTARY INFORMATION:

## Background 

                    Section 707(a)(2)(B) provides that, under regulations prescribed by the Secretary, if transfers of property between a partner or partners and a partnership, when viewed together, are properly characterized as a sale or exchange of property, such transfers shall be treated as either transactions between the partnership and one who is not a partner or between two or more partners acting other than in their capacity as partners. The legislative history of section 707(a)(2)(B) indicates the provision was adopted as a result of Congressional concern that taxpayers were deferring or avoiding tax on sales of partnership property, including sales of partnership interests, by characterizing sales as contributions of property, including money, followed or preceded by related partnership distributions.                     *See*                     H.R. Rep. No. 861, 98th Cong. 2nd Sess. 861 (1984), 1984-3 (Vol. 2) CB 115. Specifically, Congress was concerned about court decisions that allowed tax-free treatment in cases that were economically                           ( print page 3509)                        indistinguishable from sales of property to a partnership or another partner, and believed that these transactions should be treated for tax purposes in a manner consistent with their underlying economic substance.                     *See*                     H.R. Rep. No. 432, 98th Cong. 2nd Sess. 1218 (1984) (H.R. Rep.), and S. Prt. No. 169 (Vol. I), 98th Cong. 2nd Sess. 225 (1984) (S. Prt.) (discussing                     *Communications Satellite Corp.*                     v.                     *United States,*                     625 F.2d 997 (Ct. Cl. 1980), and                     *Jupiter Corp.*                     v.                     *United States,*                     2 Cl. Ct. 58 (1983), both of which involved disguised sales of a partnership interest).                 

                    On October 9, 2001, the IRS and the Treasury Department issued Notice 2001-64 (2001-2 CB 316), (                    *see*                     § 601.601(d)(2)(ii)(                    *b*)), announcing that the IRS and the Treasury Department were considering issuing proposed regulations under section 707(a)(2)(B), relating to disguised sales of partnership interests. The IRS and the Treasury Department requested comments on the scope and substance of guidance concerning disguised sales of partnership interests, including any applicable safe harbors or exceptions. Written comments in response to Notice 2001-64 were received and considered in drafting proposed regulations.                 

                    In response to requests, on November 26, 2004, the Treasury Department and the IRS published in the                     **Federal Register**                     (69 FR 68838) a notice of proposed rulemaking under section 707(a)(2)(B), (REG-149519-03) relating to disguised sales of partnership interests. The proposed regulations sought to amend the existing regulations for disguised sales of property (existing property regulations) by adding rules for disguised sales of partnership interests and by revising the rules relating to disguised sales of property. The proposed regulations for disguised sales of partnership interests include a framework similar to that in the existing property regulations, with a general rule that would apply based on all of the facts and circumstances.                 

The Treasury Department and the IRS received written comments on the proposed regulations from interested parties. The Treasury Department and the IRS, having now thoroughly considered those comments, have decided to withdraw the proposed regulations. The Treasury Department and the IRS will continue to study this area and may issue guidance in the future. Until new guidance is issued, any determination of whether transfers between a partner or partners and a partnership is a transfer of a partnership interest will be based on the statutory language, guidance provided in legislative history, and case law. 

# List of Subjects in 26 CFR Part 1

      - Income taxes
      - Reporting and recordkeeping requirements

## Withdrawal of Notice of Proposed Rulemaking 

                    Accordingly, under the authority of 26 U.S.C. 7805, the notice of proposed rulemaking (REG-149519-03) that was published in the                     **Federal Register**                     on November 26, 2004 (69 FR 68838) is withdrawn.                 

L.E. Stiff, 

Deputy Commissioner for Services and Enforcement.

 [FR Doc. E9-1101 Filed 1-16-09; 8:45 am] 

BILLING CODE 4830-01-P