Disregarded entities.

• Author: Laffie, Lesli S.
• Position: AICPA ACTIVITIES

On Jan. 30, 2006, the AICPA asked the IRS to withdraw proposed regulations on the treatment of disregarded entities in allocating partnership liabilities under Sec. 752.

Under the proposed regulations (issued in August 2004), when determining economic risk of loss for Sec. 752 purposes, a disregarded entity's payment obligation should be taken into account only to the extent of the entity's net value. According to the AICPA, however, the proposal, in application, will "create significant compliance burdens for taxpayers" and will "result in inconsistent treatment" for different entities.

There may be situations in which partnership interests are held through disregarded entities for nontax considerations. Under the current regulations, it is assumed that all partners with obligations to make payments intend to actually perform those obligations (regardless...