If a partner contributes property to a partnership, and within a two year period, receives cash from that partnership, the tax rules generally treat that as a disguised sale of property by the partner to the partnership. One common way to avoid the disguised sale treatment is to have a partnership borrow money to make the distribution, where the liability is allocated to the distributee partner under Section 752.
There is now some concern that the eagerly anticipated regulations on disguised sales may adopt the 2014 recommendation of the NY State Bar Association and shut down leveraged partnership structures. Hopefully this is not the case, as there are simpler ways to address the government’s concern without shutting down all leveraged partnership structures .
