IRS Issues Proposed Regulations Relating to Disguised Payments for Services and Discussing Tax Treatment of Management Fee Waiver Arrangements
On Wednesday July 22, 2015, the Internal Revenue Service ("IRS") issued Proposed Regulations (REG-115452-14) providing guidance to partnerships and partners as to whether an arrangement between a partnership and a service provider is treated as a disguised payment for services under Section 707(a)(2)(A) of the Internal Revenue Code of 1986, as amended ("IRC"). Characterization of an arrangement as a disguised payment for services could have adverse tax consequences to fund sponsors and/ or their affiliates receiving payments, and could also impact the tax treatment of the partnership and the other partners.
The Proposed Regulations contain conforming changes to the guaranteed payment regulations under IRC Sec. 707(c) as well as a notice of proposed modifications to Revenue Procedure 93-27 (as clarified by Revenue Procedure 2001-43) relating to issuance of interests in partnership profits to service providers.
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