Particularly, the IRC Section 351 requirements that the contributing shareholders control more than 80 of the interest after the transaction and the concerns over voting versus non. 3.1.1 There will be no deemed diversification if the portfolios being combined meet certain highly technical tests. This CLE/CPE course will provide tax counsel with a detailed and practical guide to the rules governing contributions by U.S. Persons to related foreign partnerships, particularly in the wake of new IRC 721(c) Treasury Regulations, which effectively end non-recognition treatment of partnership contributions if a US person contributes appreciated property to a partnership (US or foreign) in. The general rule under Sec. 721 is that no gain or loss is recognized on the transfer of property in exchange for an interest in a partnership.

There are at least two letter rulings supporting this rule (Private Letter 9328035 and Private Letter 9310019). In these letter rulings, the contribution of property into a partnership was held not to create diversification for the transferors if they fell within the guidelines outlined above. Obviously, we will have to examine carefully the nature and value of the assets as we combine the portfolios in this partnership.Because the transfer is exempt under Internal Revenue Code section 721, the real estate excise tax does not apply to Mikes conveyance of real property to LIMA. An investment company is generally a partnership where more than 80% of the value of the assets (excluding cash and nonconvertible debt obligations) are held for investment and are readily marketable stock or securities or other interests.

The temporary regulations generally adopted the rules outlined in Notice 2015-54 (see Tax Alert 2015-1613).The final regulations adopt the provisions of the temporary regulations in most respects, and no changes were made in response to comments. The final regulations request comments on whether the exclusion for securities from IRC Section 721(c) property should continue to apply to controlled foreign corporation stock if potential exists to shift subpart F income or tested income to a related foreign partner not owned by a US shareholder.The final regulations are effective Janu(although they generally apply to contributions occurring on or after August 6, 2015).IRC Section 721(c) grants Treasury the regulatory authority to deny nonrecognition treatment under IRC Section 721(a) of 'gain realized on the transfer of property to a partnership if such gain, when recognized, will be includible in the gross income of a person other than a United States person.'In January 2017, the IRS issued proposed regulations ( REG-127203-15) and temporary regulations ( TD 9814) under IRC Section 721(c) (see Tax Alert 2017-0185). The final regulations follow the expired temporary regulations, with changes or clarifications to the definition of related persons, the consistent allocation method, and reporting requirements. To avoid gain recognition, among other things, the partnership must adopt the remedial allocation method under IRC Section 704(c) and the consistent allocation method under the final regulations, in each case with respect to the transferred property.

Section 1.721(c)-3(c)), even though the partnership might allocate IRC Section 704(b) items with respect to IRC Section 721(c) property in different percentages for the entire tax year. Section 1.721(c)-3(c)(1): 'upon a variation (as described in 1.706-4(a)(1)) of a transferor's interest in 721(c) partnership, book items with respect to 721(c) property that are allocated under the interim closing method (as described in 1.706-4) will be treated as allocated in the same percentage for purposes of applying the consistent allocation method in a single year unless the variation results from a transaction undertaken with a principal purpose of avoiding the tax consequences of the method.'The new language permits an IRC Section 721(c) partnership to use the interim closing method under IRC Section 706 without running afoul of the proportionate allocation rule for book allocations of items with respect to IRC Section 721(c) property (within the meaning of Treas. The final regulations contain the following new language in Treas. Section 1.721(c)-3(c)(1) 'consistent allocation method,' among other requirements. Section 1.721(c)-1(b)(12) by testing relationships without regard to the partner-to-partner attribution rule under IRC Section 267(c)(3).The change is taxpayer-favorable as it should reduce the number of IRC Section 721(c) partnerships.Application of consistent allocation method treatment of book itemsPartnerships that adopt the gain-deferral method to avoid gain recognition under IRC Section 721(c) generally will need to comply with the Treas.

The IRS noted that the contributing partner could file amended returns applying the gain-deferral method.The final regulations retain the rules for IRC Section 708(b)(1)(B) technical terminations for technical terminations occurring on or after the applicability date but before the repeal of technical terminations under the Tax Cuts and Jobs Act.For additional information concerning this Alert, please contact: Taxpayers can still use the statements that were required under the temporary regulations until that date.Clarifications regarding the final regulationsThe IRS elected not to adopt a commenter's request that the final regulations exempt from gain recognition under IRC Section 721(c) certain contributions to deemed partnerships when the partnership was formed unwittingly (an accidental partnership) and the partnership therefore could not have applied the gain-deferral method. The new forms are required for tax filings after March 17, 2020. Persons With Respect to Certain Foreign Partnerships, and Form 8838-P, Consent To Extend the Time To Assess Tax Pursuant to the Gain Deferral Method (Section 721(c)). The regulations do not deem proration method allocations under IRC Section 706 to comply with the consistent allocation method, however.The new language is taxpayer-favorable as it should prevent taxpayers from violating the consistent allocation method due to economic changes to the partners' interests in the partnership in certain cases.The IRS modified the reporting requirements to account for new forms that were published after the temporary regulations: Form 8865, Return of U.S.

Irc 721