IRS Blunders in Treatment of NRCOs in CCA 201606027

• Published in: Journal of Taxation Vol. 124; no. 5; p. 222
• Main Authors: Lipton, Richard M, Schneider, Steven R
• Format: Trade Publication Article
• Language: English
• Published: New York Thomson Reuters (Tax & Accounting) Inc 01.05.2016
• Subjects: Corporate tax planning; Documentation; Liabilities; Loan originations; Partnership allocations; United States > US
• ISSN: 0022-4863

This CCA does serve one important purpose, however, which is to highlight to tax practitioners the importance of reviewing the NRCOs contained in loan documents to make certain that they do not contain provisions that could convert a loan from nonrecourse to recourse. Although the provisions in CCA 201606027 do not appear to do so, some loan documents contain broad-reaching NRCOs that could impose noncontingent liability on one of the partners; tax practitioners need to be vigilant in making certain that such provisions are either excluded or revised to satisfy the remote contingency requirement of Reg. 1.752-2(b)(4). It is clear that CCA 201606027 is wrong. It may not be precedent, but it is very misleading and seems directly contrary to both the regulations and common sense. Unless the IRS quickly acts to remove this cloud over the allocation of liabilities, there will be considerable uncertainty concerning how partnerships need to allocate their liabilities. The IRS needs to withdraw CCA 201606027 as soon as possible.