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The American Institute of CPAs has sent a comment letter to the Internal Revenue Service about Notice 2015-54, Transfers of Property to Partnerships with Related Foreign Partners.

Troy Lewis

When the IRS released the notice last year, it said it intended to issue regulations under Section 721(c) of the Tax Code “to ensure that, when a United States person transfers certain property to a partnership that has related foreign partners, income or gain attributable to the property will be taken into account by the U.S. transferor either immediately or periodically.”

In its comment letter, the AICPA asked the IRS to clarify its authority for certain portions of the proposals and that the regulations include relief for taxpayers exercising due diligence and good faith in complying with detailed reporting requirements. In addition, the AICPA suggested several exceptions to the definition of an acceleration event, an increase in the dollar threshold of the tangible property exception and a delay in the effective date of the regulations. Acceleration events are certain specified transactions, occurring after the original property transfer, which generally reduce or defer the amount of built-in gain to be eventually recognized by the U.S. contributor.

“The myriad of reporting requirements required of U.S. Transferors will prove difficult to navigate and invites the chance of a misstep even if the taxpayer exercises reasonable care,” wrote AICPA Tax Executive Committee chair Troy Lewis in the May 19 letter. “Any misstep is treated as an Acceleration Event with respect to all Section 721(c) Property of a Section 721(c) Partnership. The A ICPA believes this penalty is too severe as it could trigger the recognition of large unanticipated gains in situations where a taxpayer exercised reasonable due diligence and acted in good faith.”

While the notice said the regulations would be issued under Sections 482 and 6662 of the Tax Code, applicable to controlled transactions involving partnerships to ensure the appropriate valuation of such transactions, the AICPA letter addresses only the intended regulations under Section 721(c). However, the AICPA said it may send additional comments on the intended regulations under Sections 482 and 6662 at a later time.

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