Proposed Regulations seek to curtail perceived abuses, including the use of “bottom-dollar” guarantees and some indemnity arrangements.

On January 29, 2014, the Internal Revenue Service (IRS) proposed regulations that would significantly amend the rules under Internal Revenue Code (IRC) Section 752 relating to the allocation of partnership liabilities. In reaction to perceived abuses of leveraged partnership structures, the proposed regulations aim to prevent the use of certain guarantee and indemnity arrangements (including so-called “bottom dollar guarantees”) for tax planning purposes by imposing certain “commercially reasonable” standards and a net value requirement in order for such arrangements to be recognized under the recourse debt allocation rules. The proposed regulations also include coordinating revisions and other clarifications of the partnership disguised sales rules under IRC Section 707.