Treasury Department Posts Varying Interests Rule Regulations

Recently the U.S. Department of Treasury and the Internal Revenue Service (IRS) has issued final regulations that deal with the varying interests rule under Section 706 of the Internal Revenue Code.  The new interest rule regulations address the “allocations of certain cash basis items and allocations when interest shifts occur in a tiered partnership structure.”  The varying interest rule was intended to prevent partners from receiving a retroactive allocation of tax losses or other benefits after joining a partnership during the year.  This interest rule does not apply to shifts among those that are partners for the entire taxable year so long as those shifts cannot be attributed to new capital influxes.  The final regulations adopt the framework of the 2009 proposed regulations with some minor modifications that are discussed in this article.  

See Kevin J. Freeley, Treasury Finalizes Regulations on the Varying Interests Rule Under Section 706, October 19, 2015. 

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