IRS Proposes Regulations to Redefine Limited Partnership Interests

The IRS has proposed regulations that would more narrowly define when a partner’s interest is considered a limited partnership interest. This new definition applies only to the passive activity rules.

Before, losses from an interest in a limited partnership were treated as passive losses because no limited partner could materially participate in that interest. The Revised Uniform Limited Partnership Act made it possible for limited partners to retain their limited liability while they materially participate in the management of the partnership.  The IRS’s proposed amendment (REG-109369-10) addresses these modifications.  

See IRS Proposes New Treatment of LLC Members, Limited Partners Under Passive Loss Rules, Journal of Accountancy, Nov. 28, 2011.

Special thanks to Jim Hillhouse (WealthCounsel) for bringing this article to my attention.