Discussion:Accrued interest to partner: recourse debt?
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Revision as of 23:54, 1 November 2009
Discussion Forum Index --> Advanced Tax Questions --> Accrued interest to partner: recourse debt?
Discussion Forum Index --> Tax Questions --> Accrued interest to partner: recourse debt?
| 30 October 2009 | |
| Partner makes loan to a partnership which he is a partner in. Interest expense is accrued by partnership, but never paid to date. Could the accrued interest payable also be considered recourse liabilitiy to the partner who made the loan?
Thanks. | |
| 31 October 2009 | |
| The fundamental issue is that partner has no basis in this virtual interest until he pays tax on it. Without this reality check, I could make a 25% interest loan and increase my basis in company from thin air.
To do it. Deduct interest expense, pay it to partner, partner pays income tax. Partner then loans the full amount of interest received and increases his recourse liability. PS. Hopefully, you've not been deducting the interest expense without paying partner??? | |
Harry Boscoe (talk|edits) said: | 31 October 2009 |
| Seems to me that interest payable is a liability of the partnership whether or not the interest is deductible [yet] by the partnership and that it doesn't have to be payable to the partner for the partner (a general partner, let's say) to share in that recourse liability as tax basis in the partnership.
But then the IRS published a ruling about fifteen or twenty years ago that said something to the effect of "regular monthly trade payables of a partnership like the phone bill" should not be considered "recourse liabilities" in the computation of a general partner's tax basis in his partnership interest. Or something like that. Anybody else remember this? | |
| 31 October 2009 | |
| This is from the IRS Audit Technique Guide:
A threshold question is whether a partnership liability actually exists. The section 752 regulations were amended in 2005 to provide a definition for the term “liability”. For transactions entered into after June 24, 2003, Treas. Reg. section 1.752-1(a)(4)(i) states that an obligation is a liability for purposes of IRC section 752 only if, when, and to the extent that incurring the obligation --- (A) creates or increases the basis of any of the obligor’s assets (including cash) (B) Gives rise to an immediate deduction to the obligor; or (C) Gives rise to an expense that is not deductible in computing the obligor’s taxable income and is not properly chargeable to capital. Since the accrued interest payable to the partner is not deductible unless paid in the same time period, it would not give basis as debt under (B) above. | |
Harry Boscoe (talk|edits) said: | 31 October 2009 |
| Oh darn! Recent events [the 2005 regs...] may have escaped my attention. | |
| 31 October 2009 | |
| Kathi, Thanks for the references above. I had the right idea, but if some one had asked - prove it. I'd have squat. Still learning. | |
| 31 October 2009 | |
| All Hallows Eve??? I'm shuttering the windows and bolting the doors. Tax law is spooky enough as it is!!!!! | |
RoyDaleOne (talk|edits) said: | 1 November 2009 |
| What about "or (C) Gives rise to an expense that is not deductible in computing the obligor’s taxable income and is not properly chargeable to capital."
As quoted above? | |
Harry Boscoe (talk|edits) said: | 1 November 2009 |
| Like "parking tickets payable" for an accrual partnership? | |
