IRS Final Regulations Eliminate Bottom-Dollar Guarantees

Posted by Lee Meyercord and Jessica Kirk

           

The IRS recently released final regulations under section 752 that ended the viability of bottom-dollar guarantees.  The final regulations substantially adopt the temporary regulations issued on October 5, 2016.  Bottom-dollar guarantees have long been a tax-planning technique to increase a partner’s basis in her partnership interest and defer gain recognition. The IRS has been critical of bottom-dollar guarantees because it believes they lack a substantial business purpose and economic significance.