Source: https://www.federalregister.gov/articles/2012/12/28/2012-31155/partners-distributive-share
Timestamp: 2016-05-02 06:00:30
Document Index: 533039921

Matched Legal Cases: ['§ 1', '§ 1', '§ 1', 'art 1', '§ 1', '§ 1', '§ 1', '§ 1']

Federal Register | Partner's Distributive Share
-76382 (3 pages)
Document Number: 2012-31155
Shorter URL: https://federalregister.gov/a/2012-31155 Related Topics
Partner's Distributive Share 3 actions from October 25th, 2011 to December 2013
76 R 66012
Applicability Date: The final regulations under § 1.704-1(b)(2)(iii)(e)(1) are applicable for partnership taxable years beginning after May 19, 2008 and beginning before December 28, 2012. The final regulations under § 1.704-1(b)(2)(iii)(e)(2)(i) are applicable beginning on or after December 28, 2012, and the final regulations under § 1.704-1(b)(2)(iii)(e)(2)(ii) are applicable for partnership taxable years beginning on or after December 28, 2012.
These final regulations contain amendments to the Income Tax Regulations (26 CFR Part 1) under section 704 of the Internal Revenue Code (Code). On October 25, 2011, the Treasury Department and the IRS published a notice of proposed rulemaking (REG-109564-10) (the proposed regulations) in the Federal Register to remove the de minimis rule in § 1.704-1(b)(2)(iii)(e) (the de minimis partner rule). The proposed regulations provide that the final regulations are effective on the date they are published in the Federal Register.
One commenter suggested adopting a “reasonable assumptions rule” for de minimis partners and indirect partners. This commenter noted that a partnership must know the tax attributes of its partners in order to determine whether a partnership's allocations are substantial. However, this commenter also explained that many partnerships are comprised of partners that are passthrough entities and it is difficult for these partnerships to obtain information about the tax attributes of their ultimate partners. Thus, this commenter recommended that the Treasury Department and the IRS permit a partnership to make reasonable assumptions about: (1) The tax attributes of any partner that owns (directly, indirectly, and through attribution) not more than a 5 percent interest in the capital or profits of the partnership (each, a de minimis partner); and (2) the identity and tax attributes of any person that owns an interest in the partnership indirectly through one or more “look-through entities” (within the meaning of § 1.704-1(b)(2)(iii)(d)(2)) other than disregarded entities (each, an indirect partner). Under this approach, if a partnership makes reasonable inquiries regarding the tax attributes of all de minimis partners and indirect partners but is unable to obtain the necessary information, then the partnership would be permitted to make reasonable assumptions about the tax attributes of those partners, but only if, in the aggregate, those de minimis partners and indirect partners do not own more than a 30 percent interest in the profits and capital of the partnership.
With respect to existing allocations, one commenter suggested that the de minimis partner rule was sufficiently flawed that it should be promptly removed, and that it should not continue to apply to allocations that became part of the partnership agreement prior to its removal. The Treasury Department and the IRS agree with this comment. Accordingly, these final regulations are effective, and therefore the de minimis partner rule of § 1.704-1(b)(2)(iii)(e) is no longer applicable, for all partnership taxable years beginning on or after December 28, 2012, regardless of when the allocation became part of the partnership agreement. Thus, the substantiality of all partnership allocations, regardless of when they became part of the partnership agreement, must be retested without the benefit of the de minimis partner rule. For allocations in existing partnership agreements, the retest has to be as of the first day of the first partnership taxable year beginning on or after December 28, 2012.
It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order 12866, as supplemented by Executive Order 13563. Therefore, a regulatory assessment is not required. It has also been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations, and because the regulation does not impose a collection of information on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to section 7805(f) of the Code, these regulations have been submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business, and no comments were received.
Par. 2. Section 1.704-1(b)(2)(iii)(e) is revised to read as follows:
§ 1.704-1 Partner's distributive share.