CategoryProperty

Bad Boy Guarantee Makes Loan Recourse?

Magnifying Glass and TaxBy:  Amanda Wilson

The IRS recently released IRS legal memorandum 201606027.  In this memorandum, the IRS considered the impact of a bad boy guarantee on allocating partnership liabilities under Section 752.  Traditionally, bad boy guarantees have not been viewed as resulting in a partnership liability being allocated to the guarantor, as the guarantee obligation has been viewed as subject to contingencies that make it unlikely that the guarantee would ever come into play.

However, the IRS disagreed in this memorandum, and determined that the liability should be treated as recourse as the guarantor should be treated as bearing the economic risk of loss for the liability as a result of the bad boy guarantee.  This memorandum is creating a fire storm in the real estate area, as it potentially means that  billions of dollars of liabilities may have been incorrectly allocated.

 

Considering a Future Like-Kind Exchange of Real Property?

By:  Amanda Wilson

If you are considering a future like-kind exchange of real property, proceed with caution.

The tax code allows taxpayers to exchange property that they hold for investment or use in business for property of a like-kind without having to recognize the tax gain on the exchange.  The gain is instead deferred until the taxpayers dispose of their replacement property.  While like-kind exchanges are a popular tax planning tool, they have become the target of proposals aimed at raising tax revenues.  Most recently, the Obama Administration has proposed limiting the amount of capital gain that can be deferred from a like-kind exchange of real property to $1 million per taxpayer per tax year.  If this proposal is enacted into law, it is expected to apply to like-kind exchanges completed after December 31, 2014.  So, if a like-kind exchange of real property is on the horizon for you, be wary and consider acting sooner rather than later.

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