The Tax Section of the American Bar Association (ABA Tax Section) provided comments on August 8th to the proposed regulations, issued by the Treasury Department and IRS in January 2014, regarding the allocation of partnership liabilities under Section 752, and the partnership disguised sale rules under Section 707.  While the ABA Tax Section generally supported the proposed regulations under Section 707, they recommended that the proposed Section 752 regulations be withdrawn and replaced with new proposed rules that address in a more targeted fashion the transactions that Treasury and the IRS identify as objectionable.  The comments state that the proposed Section 752 regulations “make fundamental changes to the way recourse and nonrecourse liabilities are allocated.”  The comments also state that these changes “would prove very difficult to administer, cause unnecessary controversy and uncertainty, and would shift allocations of debt away from partners who bear economic risk for partnership liabilities to partners that bear no economic risk.”  Additionally, the proposed changes are noted as being inconsistent with the sharing of economics agreed to among partners in many cases and with the purposes of Section 704(b) and Section 456.  The ABA Tax Section was particularly concerned that the “economic risk of loss” standard for allocating partnership liabilities should continue to be defined in a manner that is consistent with the “worst case” scenario, rather than by a “commercial reasonableness” standard under the proposed regulations.