The new regulations maintain the existing regime whereby „top“ or „first dollar“ guarantees and „vertical“ guarantees (i.e. a guarantee of part of every dollar of the partnership guarantee) result in the allocation of the guaranteed portion of the debt to the partner`s guarantor. In addition, certain back-up guarantees for partnership debts, for which the partner`s guarantor is looking for at least 90% of the debt, remain allowed. However, in accordance with the proposed regulations (which would be effective at the time of finalizing them), the IRS has provided, under the new regulations, a fairly strict anti-abuse rule, which may even lead to diss breathtaking vertical or vertical guarantees. Under these proposed regulations, a guarantee or other obligation of a partner is not met if the facts and circumstances demonstrate a plan to circumvent or circumvent the undertaking. In addition, the new rules show that if a partner`s ability to repay is uncertain, the IRS may use this fact as evidence of a plan to circumvent or circumvent a payment obligation. This means that you need to restructure the guarantees if you have made such guarantees and if the underlying debts are changed so as not to neglect them. A seven-year period gives you time to take a closer look at the impact of the new rules on you and your alternatives. The first step is to determine the potential impact of this change on each partner, based on the transitional amount and when the debt should be withdrawn, refinanced or modified. As a general rule, determining the transitional amount is most effective as a joint exercise between the partner and the partnership, unless the partner has acquired the partnership shares solely on the basis of providing liquidity to the partnership, since the basis is determined at the partner level and may be based in part on transactions in which the partnership did not participate (i.e., succession or purchase from another partner). With this knowledge, the partnership and the various partners can determine what steps they intend to take to delay or eliminate the consequences of changing rules.
The calculation of the transitional amount should be maintained throughout the transitional period in order to make appropriate use of the transitional rules provided for by the regulations. To illustrate the effect of a compensation agreement, accept the same facts as above, except that Carol agrees to compensate Albert up to $100 if Albert has to pay as part of his guarantee, and Carol agrees to compensate Bob in full if he pays as part of his guarantee. The validity dates of the new regulations are a mixed bag a little confused. The final provisions of Sections 707 and 752 come into effect on October 5, 2016. The temporary plans under Section 752 apply from October 5, 2016, while the revised Section 707 temporary plans (including „disguised sales rules“) apply from January 3, 2017. Several proposed regulations would come into effect prospectively from the date of their publication as final regulations. Fortunately, the new provisions, which ignore the guarantees for the lower dollar, have an exception that these existing guarantees can meet for up to seven years. Partnerships have the option of applying some of the new regulations before their mandatory validity dates. This warning does not cover all the nuances of the new, long and complex regulations, but highlights its impact on some more frequent partnership transactions.