Discover more: IRS Releases Proposed Regulations on Partnership Interests
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The proposed regulations provide much-needed details on the scope and application of Section 864(c)(8). One area that had been of concern to many practitioners was the potential taxation that could arise on transfers of a partnership interest in a transaction that would otherwise be tax-free under a nonrecognition rule (such as tax-deferred reorganizations under Section 368 or exchanges for shares under section 351). Fortunately (and appropriately), the proposed regulations do not impose taxation in these situations even though Congress gave the Treasury Department the authority to do so. Many foreign partners had been hesitant to engage in such transfers (e.g., in the context of a group restructuring). This proposed regulation should provide comfort for those partners and allow such transactions to proceed.