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Abstract: 

Investment funds and financial institutions can take advantage of partnership structures to share in the profits of a business venture, obtain the benefits of tax credits, or effectuate a tax-deferred transfer of assets. Investment funds and financial institutions that seek to enter into partnership transactions should be aware, however, that the U.S. tax authorities are increasing their scrutiny and challenge of such transactions on disguised sale grounds pursuant to Section 707(a)(2)(B). This article explores some of the recent court decisions that have addressed this issue, and provides a checklist of several factors that investment funds and financial institutions should consider when structuring a partnership transaction—and before undertaking such a transaction.

Keywords: leveraged partnership; disguised sale; debt-financed distribution; net worth of a guarantor or indemnitor; promoter; reasonable cause; economic risk of loss; United States v. G-I Holdings; Virginia Historic Tax Credit Fund 2001 LP; Canal Corporation

Affiliations:  1: Baker & McKenzie LLP.