The IRS issued Notice 2015-54 stating that it plans to issue regulations under Section 721(c) to ensure that U.S. taxpayers do not use partnerships to shift built-in gains to non-U.S. affiliates. In 1997 Congress authorized the IRS to issue regulations to turn off the normal tax-free rules for partnership contributions if there could be a shifting of built-in gain to non-U.S. persons. In response to a concern of U.S. taxpayers using partnerships to shift gain to non-U.S. affiliates, Notice 2015-54 provides that new regulations will mandate using the “Remedial” method under Section 704(c), plus several other restrictions, if a U.S. person contributes built-in gain property to a domestic or foreign partnership when (i) a related foreign person is a direct or indirect partner, and (ii) the U.S. transferor (or a related person) owns more than 50% of the partnership. The new guidance will generally apply to transfers occurring on or after August 6, 2015 (or earlier deemed contributions from check-the-box elections made on or after this date).
