Final Regs Issued on Debt Satisfied by a Partnership Interest

The IRS on Tuesday issued final regulations on the application of Sec. 108(e)(8) to partners and partnerships (T.D. 9557). The regulations provide rules for determining a partnership’s discharge of indebtedness (DOI) income when it transfers a partnership interest to a creditor to satisfy a partnership debt.

The regulations also discuss how Sec. 721 applies when a partnership’s debt is contributed to the partnership in exchange for a capital profits interest in the partnership. The regulations also cover how partnership DOI income is allocated as a minimum gain chargeback under Sec. 704.