Opinion ID: 22187
Heading Depth: 1
Heading Rank: 2

Heading: The MPPAA and the Treasury Regulations under section 414(c) of Title 26

Text: 69 The MPPA provides that under regulations prescribed by the [Pension Benefit Guaranty Corporation], all employees of trades or businesses (whether or not incorporated) which are under common control shall be treated as a single employer. The regulations prescribed under the preceding sentence shall be consistent and coextensive with regulations prescribed for similar purposes by the Secretary of the Treasury under section 414(c) of Title 26. 29 U.S.C. § 1301(b)(1). In the absence of independent regulations promulgated by the corporation, we refer to the pertinent Secretary of the Treasury's regulations, 26 CFR § 1.414(c). 70 The criteria for determining whether there is common control of a brother-sister group of trades or businesses is provided by 26 CFR § 1.414(c)-2(c). The definition of such a group requires, inter alia, that the same persons own a controlling interest in each of the trades or businesses in question. With respect to partnerships, § 1.414(c)-4(a) states: In determining the ownership of an interest in an organization for purposes of § 1.414(c)(2) . . . the term 'interest' means: in the case of . . . a partnership, an interest in the profits or capital. 26 C.F.R. § 1.414(c)-4(a). 71 The majority apparently assumes that the regulation implicitly recognizes that an interest in the profits or capital of a partnership may be transferred by a single partner to a third party who is not a partner. The majority does not cite any authority for that proposition, and I have found no indication of such a phenomenon. In the common usage of the Internal Revenue Code, the Secretary of the Treasury's regulations, tax law scholars, and tax law practitioners, capital interest refers, in the partnership context, to a partner's capital interest. In fact, the Internal Revenue Code and regulations evidently presume that only the partners own interests in the capital of the partnership. 1 See 26 U.S.C. §§ 706(b)(1), 706(b)(3), 707(b)(1)(A), 707(b)(2)(A), 708(b)(2)(A), 708(b)(2)(B), 743(b); 26 C.F.R. §§ 1.721-1(b)(1), 1.704-1(e). Regulation § 1.704-1(e), which defines a capital interest as any interest in the assets of the partnership to which the partner is entitled upon withdrawal from the partnership or upon the liquidation of the partnership and distinguishes that interest from a mere right to participate in the earnings and profits of the partnership[, provides an] . . . appropriate definition for most, if not all, purposes of the Code. Arthur B. Willis, et. al, Partnership Taxation ¶ 1.07[3], at 1-112 (6th Ed. 1999)(hereinafter Willis)(emphasis added). 2 Consequently, I believe the majority is mistaken in its apparent assumption that the Federal tax laws and Treasury regulations suggest the existence of substantive partnership laws permitting a single partner to favor third persons with free-floating interests in the profits and capital of the partnership without the consent of the other partners.