The IRS released final regulations under Section 752, providing guidance on allocating partnership recourse liabilities and rules for related partners
The Bottom Line
On November 29th, the IRS released the Final Regulations under Section 752 providing guidance on the allocation of partnership recourse liabilities amongst partners and rules for related persons.
The Final Regulations largely adopt the proposed regulations issued under §752 in 2013, including implementing in part the result in IPO II v. Commissioner, 122 T.C. 295 (2004) with respect to the related partner exception. Amongst other provisions, the Regulations outline to what extent a partner is treated as bearing an economic risk of loss (EROL) for a liability, including allocating partnership recourse liabilities in situations where overlapping EROL occurs (multiple partners bear EROL for the same liability).
Applying the Final Regulations
The Final Regulations apply to any liability incurred or assumed by a partnership on or after the effective date of December 2, 2024, subject to two exceptions for a refinancing provision and binding contract provision.
Partnerships may also choose to apply the Final Regulations to all liabilities of the partnership, regardless of the date on which they were incurred or assumed, provided the partnership consistently applies all of the rules in the final regulations to those liabilities.