By:  Amanda Wilson

As previously discussed (here), the IRS recently released a chief counsel advice memorandum that concluded that bad boy guarantees turned what would otherwise be a nonrecourse debt into a recourse debt for Section 752 purposes.  This was an extremely unpopular decision, and received significant backlash from the real estate community.  Responding to this pressure, the IRS has now completely reversed its position.  In a generic legal advice memorandum issued Friday, the IRS makes it clear that common bad boy guarantees will not cause a nonrecourse loan to be classified as recourse.