Monte Jackel Quoted in Tax Notes Today on New Disguised Sale Rules

Akin Gump senior counsel Monte Jackel has been quoted in the Tax Notes Today article “Transactions Testing Boundaries of New Disguised Sale Rules,” discussing how tax practitioners could still be able to plan partnership debt transactions despite these new rules, which are intended to eliminate leveraged partnerships. One way of doing that, according to the article, is through over-the-top loan transactions.

Jackel, however, said these types of transactions could be challenged by the IRS on the basis of being a disguised sale of a partnership interest. The underlying theory, he said, would be that a nonrecourse loan is similar to an option, so a call or put option exists at the inception of the transaction.

The IRS, Jackel pointed out, could also assert its authority to deal with certain financing transactions and conduits and then issue a notice stating that regulations would be issued to invalidate the transaction. He cited the Tax Court case H Enterprises International Inc. v. Commissioner to underscore that argument.

Jackel also said that if a special allocation were to be used in a transaction, it would then appear as if there was never a loan obligation to begin with. He explained that if there is a default on the loan, the partnership would claim a bad debt deduction under section 166.

“When the smoke clears here, there is a net zero tax effect to the loan,” Jackel said.