gray line

News & Publications

blue line
News & Publications >> Press & Media >> Audit Rules May Be Backdoor for Foreign Partner Sale Enforcement

Audit Rules May Be Backdoor for Foreign Partner Sale Enforcement

Kate Kraus in Tax Notes

Tax Notes (January 16, 2019) The centralized partnership audit regime could allow the IRS to enforce a new withholding provision even though that provision has been effectively suspended pending the issuance of further guidance. The new withholding requirement generally requires buyers to withhold on behalf of foreign sellers of partnership interests, but a statutory provision makes the partnership secondarily liable if the buyer doesn’t comply. After the latest batch of final regulations (T.D. 9844) implementing the partnership audit regime was released December 21, practitioners questioned whether some gains from the sale of partnership interests would be included in the program depending on the character of those items. According to Kate Kraus of Allen Matkins Leck Gamble Mallory & Natsis LLP, it appears that the amount of ordinary income or loss recognized by the selling partner attributable to “hot assets” under section 751 might be covered by the audit rules, but the amount of capital gain or loss from the sale of the interest under section 741 wouldn’t be within the scope.