IRS and Treasury Issue Final Regulations on Partnership Transactions Involving Equity Interests of a Partner: TD 9833 contains final regulations under sections 337(d) and 732(f) that: (i) prevent a corporate partner from avoiding corporate-level gain through transactions with a partnership involving equity interests of the partner or certain related entities; (ii) allow consolidated group members that are partners in the same partnership to aggregate their bases in stock distributed by the partnership for the purpose of limiting the application of rules that might otherwise cause basis reduction or gain recognition; and (iii) may also require certain corporations that engage in gain elimination transactions to reduce the basis of corporate assets or to recognize gain.

The final regulations generally adopt rules included in 2015 proposed regulations under section 337(d) (with only minor, nonsubstantive clarifications in response to the commenter’s request for additional certainty regarding certain collateral effects) and section 732(f) (without any change). However, the preamble states that Treasury and the IRS are considering publishing a new notice of proposed rulemaking to propose more substantive amendments to the final regulations under section 337(d) and to allow for additional public comment with respect to these more substantive proposals in response to a comment letter to the 2015 proposed regulations, further reflection by the Treasury Department and the IRS, and concerns raised by practitioners.