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Final Section 721(c) regulations clarify transfers by US persons to partnerships with related foreign partners

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January 2020


Treasury and the IRS on January 17 finalized regulations (TD 9891) governing transfers of appreciated property by US persons to partnerships with related foreign partners.  The final regulations generally adopt the 2017 temporary and proposed Section 721(c) regulations, but contain a number of important changes and clarifications.  Of significance, the final regulations did not accept taxpayer comments suggesting that Treasury limit the application of Section 721(c) in the case of intercompany contractual arrangements that later are deemed to be partnerships for US income tax purposes.

The takeaway

Although the changes and clarifications added in the final Section 721(c) regulations are helpful, Section 721(c) continues to create a trap for the unwary and should be navigated with care.  The potential application to deemed partnerships and dual application of BEAT add complexity to the analysis. These provisions must be considered before structures are implemented and intercompany agreements are put in place.

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Karen Lohnes

Partner, M&A Tax, PwC US

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