Many taxpayers make investments or operate businesses through entities that are treated as partnerships for U.S. federal income tax purposes, including limited liability companies, limited partnerships, and many foreign entities.

A key factor that drives the popularity of partnerships is that many transactions involving partnerships, such as contributions of property to a partnership and distributions of cash from a partnership, can generally be accomplished tax-free.

However, the partnership disguised sale rules under Section 707 of the Internal Revenue Code set many traps for the unwary that may result in otherwise tax-free transactions being treated as taxable sales.

The disguised sale rules' ambit can capture even innocuous ordinary course transactions and result in unexpected tax liability. This material will provide an overview of these disguised sale rules, with an emphasis on disguised sales of property from a partner to a partnership, the key exceptions to partner-to-partnership disguised sale treatment, and how assumptions by the partnership of a partner's liabilities factor into these disguised sale rules.

This topic is critical for practitioners and taxpayers who want to maximize the U.S. federal income tax benefits of partnerships while avoiding unexpected pitfalls.What You'll Learn:What Is a Disguised Sale?

• Disguised Sale of Property From Partner to Partnership
  
• Disguised Sale of Property From Partnership to Partner
  
• Disguised Sales of Partnership Interests
  
• Disguised Payments for Services

Exceptions to Partner to Partnership Disguised Sale Treatment

• Guaranteed Payments for Capital
  
• Preferred Returns
  
• Operating Cash Flow Distributions
  
• Reimbursement for Preformation Expenditures

Role of Liabilities in Partner to Partnership Disguised Sale Determinations

• Qualified Liabilities vs. Non-Qualified Liabilities
  
• Determining Liabilities
  
• Recent Developments Regarding Guarantees