Home      Login

Abstract: 

In 2009, Tribune Media Co. used a leveraged partnership transaction to dispose of 95 percent of its interest in the Chicago Cubs. While Tribune claims that the transaction fits within the debt-financed exception under the Section 707 disguised sale regulations, the government has asserted a deficiency of nearly $200 million in taxes and substantial penalties. Tribune Media raises issues central to the partnership provisions, including allocation of liabilities under the economic-risk-of-loss standard and application of anti-abuse rules. Notwithstanding 2019 changes to the Section 752 regulations incorporating a “commercially reasonable” standard, leveraged partnership transactions are routinely structured to defer (and potentially avoid) built-in gain on a contribution of appreciated property. Consistent with Congress’s intent in 1984 to reverse Otey, the Treasury should consider delinking the Section 707 disguised sale rules from the Section 752 liability sharing rules. Delinking Sections 707 and 752 would effectively prevent taxpayers from exploiting the debt-financed exception and would offer a less intrusive approach than fundamentally revising the liability sharing rules.

Keywords: partnerships, disguised sales, debt-financed distributions, anti-abuse rules, liability sharing rules, IRC Sec. 6417, IRC Sec. 707, IRC Sec. 752, IRC Sec.45Q, IRC Sec.45V, V45X, tax-exempt entities, for-profit entities

Affiliations:  1: University of Florida, Levin College of Law.