IV. Suggestions for Clarifying the Cease-to-Exist Rules
The test for when a partnership “ceases to exist” for purposes of the BBA leaves several uncertainties. This Article focuses on two of those uncertainties: the uncertainty raised by the Service’s discretion to determine whether a partnership “ceases to exist” even if it terminates under section 708(b)(1), and the lack of guidance as to how the BBA applies in transactions such as mergers and divisions. This Part addresses these two uncertainties in turn and suggests ways to provide clarity for taxpayers and Service personnel. While some suggestions would require amendments to the BBA regulations, others would simply require clarifications either through additional regulations or sub-regulatory guidance.
Treasury and the Service should modify the regulations to provide that a partnership automatically “ceases to exist” for audit purposes if it has terminated within the meaning of section 708(b)(1). Treasury and the Service should also issue guidance clarifying the application of the BBA in the context of transactions such as mergers and divisions. This guidance should restate that, for purposes of determining whether a partnership “ceases to exist” under the BBA audit rules, section 708(b)(1) applies to those transactions, and section 708(b)(2) and the regulatory merger and division rules do not. In other words, the guidance should make clear that a single partnership could be a continuation of multiple prior partnerships (e.g., in a merger), and multiple resulting partnerships could be continuations of a single prior partnership (e.g., in a division). Among other things, this guidance should also state that any partnership that is a continuation of a prior partnership under section 708(b)(1) is jointly and severally liable (with any other such partnership) for imputed underpayments arising from the prior partnership’s previous operations.
A. Eliminating the Service’s Discretion in Partnership Terminations Under Section 708(b)(1)
The broad nature of the Service’s discretion under the cease-to-exist rules leaves taxpayers with little guidance, even in transactions in which a partnership clearly terminates under section 708(b)(1). Recall, for example, the transaction in which a single buyer purchases all the interests in an LLC taxed as a partnership. As explained previously, the Service would treat this transaction as an asset purchase by the buyer, causing the tax partnership to terminate under section 708(b)(1). Nevertheless, the BBA gives the Service the discretion to determine that the tax partnership has not “ceased to exist” for audit purposes. This rule makes sense from the perspective of Treasury and the Service because it maximizes the government’s collection targets. From the taxpayer’s perspective, however, the rule creates significant uncertainty because there is no indication of what process the Service will use to decide whether to exercise its discretion. Further, the Service has provided no indication of how the rule will apply when the “partnership” becomes a disregarded entity.
This uncertainty is a significant problem because state-law considerations, such as avoiding real estate transfer taxes, often prompt tax advisors or even corporate attorneys to structure asset acquisitions as a purchases of membership interests rather than as direct purchases of assets. Although the Service treats both forms as asset acquisitions from the buyer’s standpoint, the Service’s discretion under the cease-to-exist audit rules means that the form of the transaction now may be critical, at least in terms of audit liabilities. For example, a buyer could presumably avoid the cease-to-exist problem entirely by restructuring the transaction as an actual asset purchase. In that case, the buyer would never own the former partnership. This point will not be obvious for many advisors and places a premium on advice from partnership tax experts.
The cease-to-exist rules are also unclear how, as a technical matter, the status of the former partnership as a disregarded entity might affect the application of the BBA. Unsurprisingly, many provisions of the BBA refer to a “partnership.” These provisions include statements that a “partnership” is liable for imputed underpayments or a “partnership” may make a push-out election or appoint or change a PR. One might ask whether a “partnership” includes a disregarded entity that was formerly a partnership. For example, would the single-member LLC discussed above be liable for imputed underpayments from prior years, even though it is no longer a “partnership”?
On a more practical note, even assuming that a disregarded entity could make a push-out election to shift the adjustments to the reviewed-year partners, one can imagine a variety of obstacles that might prevent the election from happening (or at least make it burdensome). The Service might send notices to the partnership’s prior address, which may be different from the buyer’s address. Use of the partnership’s prior address could prevent the buyer from even knowing about the audit until late in the game, especially if the PR—who may be a reviewed-year partner—waives the restrictions on assessing an imputed underpayment. In addition, the requirements for making a push-out election could prove difficult to satisfy. For a push-out election to be effective, the partnership must make it “not later than 45 days after the date of the notice of final partnership adjustment.” Then, it must furnish statements to each reviewed-year partner and the Service within 60 days after the later of (1) the “expiration of the time to file” a petition for readjustment with a court or (2) if the partnership files a petition for readjustment, “the date when the court’s decision becomes final.” The requirement to furnish statements could pose problems for our disregarded entity in several respects.
First, the LLC (i.e., the buyer) might have trouble even finding an address for the reviewed-year partners, especially if those partners are not the persons from whom the buyer purchased the LLC interests. If the LLC mails the statements, “it must mail the statement to the current or last address of the reviewed-year partner that is known to the partnership.” One can imagine many scenarios in which the buyer may not have any address for a reviewed-year partner, especially if he or she never received the books of the partnership for prior years or the Schedules K-1 sent to partners for prior years. And the reviewed-year partners—one of whom may have been, or might still be, the PR—will have little incentive to reach out to the buyer since a push-out election would shift the tax liability to them.
Second, even if the buyer obtains addresses for the reviewed-year partners, the statements must include a range of information that the buyer may have difficulty obtaining. For example, the statements must include each reviewed-year partner’s share of the partnership adjustments that are subject to the push-out election. Complying with this requirement is easy enough with equal partners who share all partnership items pro rata but becomes more difficult if an item is subject to special allocations. At that point, the buyer might need to look at the partnership agreement—another document to which he or she might not have access. Even if the buyer navigates all these obstacles, the cost to him or her in terms of time and resources would likely not have been expected at the time of purchase. Again, even many sophisticated buyers and their advisors may expect that the entity they are buying will not continue to exist as a tax partnership unless it is, in fact, a tax partnership.
To minimize these issues, the regulations under the BBA should provide that a partnership automatically ceases to exist if it terminates under section 708(b)(1). Outside of that scenario, the Service would still retain the discretion to determine whether the partnership ceased to exist. This approach would be consistent with the plain language of the statute, which simply states that the former partners will take into account the adjustment “[i]f a partnership ceases to exist.” The statute does not mention any discretion on the Service’s part in making this determination. This approach would also provide certainty to taxpayers in planning their affairs and structuring acquisitions. And it would promote consistency between Subchapter K and the BBA, streamlining the rules governing taxation of partnerships. Although this need for consistency should not always control (as we will see in the case of mergers and divisions), it makes the consequences of transactions more predictable for planners and reduces the complexity of the BBA, both for taxpayers and Service personnel.
There are several possible criticisms of this approach. First, one might argue that the Service needs expansive collection avenues to ensure that tax attributable to pass-through entities is paid. While this Article described a few possible scenarios in which the Service’s discretion could be useful, other schemes with which advisors might try to exploit the rules are not difficult to imagine. But imposing the underpayment, and the burden of shifting that underpayment to the reviewed-year partners, on a possibly unsuspecting buyer seems unnecessary and unfair. This approach likely will favor buyers who are able to afford sophisticated tax counsel who can either contractually protect the buyer or restructure the transaction to avoid the assumption of tax liabilities attributable to the prior partnership. Other buyers without such advisors may not be so fortunate.
Second, some might argue that this approach would not actually provide additional certainty since section 708(b)(1) itself is not entirely clear about when a partnership terminates. This point is valid: section 708(b)(1) is far from a model of certainty. But Treasury and the Service should focus on that problem and provide greater certainty. Instead of having two uncertain standards, the Treasury and the Service should clarify the application of section 708(b)(1) and provide that a partnership “ceases to exist” for audit purposes if it terminates under section 708(b)(1).
Third, and finally, some might point out that a determination that a partnership has ceased to exist still requires the “partnership” (which would presumably include a disregarded entity that used to be a partnership) to issue statements to its former partners as if it had made a push-out election. As with push-out elections, this requirement means the LLC needs access to information about the former partners, which it may not have. The Service should clarify that if the LLC is unable to furnish these statements because it lacks information about the former partners, that failure would not affect the partnership’s cessation of existence. Indeed, the cease-to-exist rules already provide that if the partnership fails to timely furnish the statements to the former partners, “the IRS may notify the former partner in writing of such partner’s share of the partnership adjustments based on the information reasonably available to the IRS . . . .”
B. Options for Clarifying the Treatment of Transactions Such as Partnership Mergers and Divisions
In addition to the issues arising from the Service’s broad discretion to determine whether a partnership “ceases to exist,” there is a dearth of guidance regarding the interaction of the BBA and partnership mergers, divisions, and similar transactions. The BBA regulations do not mention the merger and division rules under section 708(b)(2). Nor do they provide any special rules that might apply when, for example, a post-transaction partnership could be a continuation of multiple pre-transaction partnerships or multiple post-transaction partnerships could each be continuations of a single pre-transaction partnership. Although any of these situations could clearly occur in a merger or division, these situations are by no means limited to those transactions. Perhaps the failure to address these situations was intentional, with the purpose of maximizing the Service’s collection options in a case-by-case manner. But failing to mention the issue in the text of the regulations, or at least in the preamble, leaves taxpayers and Service personnel with a lack of clarity. For example, when the merger and division rules do not apply, which post-transaction partnership (of which there could be two or more) bears imputed underpayments arising from a prior partnership’s operations? Whose members would bear the tax if the partnership failed to pay within ten days of notice and demand? Who has the power to appoint and remove the PR for the taxable year under review? Which partnership has the power to file an AAR?
To understand the rationale for the decision by Treasury and the Service not to provide guidance on application of the merger and division rules, we must analyze several approaches that the BBA regulations could have taken in the context of mergers, divisions, and similar transactions. Ultimately, this Article concludes that Treasury and the Service correctly excluded the merger and division rules in determining when a partnership “ceases to exist” under the BBA. Instead, section 708(b)(1) applies, meaning that a single partnership could be a continuation of multiple prior partnerships (e.g., in a merger) and multiple resulting partnerships could be continuations of a single prior partnership (e.g., in a division). The Article then suggests that the Service issue guidance clarifying how the BBA applies in these situations. Among other things, this guidance should provide that any partnership that is a continuation of a prior partnership is jointly and severally liable (with any other such partnership) for imputed underpayments arising from the prior partnership’s previous operations.
1. Rely on the Transferee Liability Rules
One approach Treasury and the Service could have taken is simply to rely on transferee liability principles in transactions such as mergers and divisions. But this solution is suboptimal. Although transferee liability certainly has a part to play in the Service’s ability to collect tax from partnerships and their partners, it is not a panacea for the Service and would be difficult to apply without first clarifying when a partnership “ceases to exist.”
a. Transferee Liability Generally. In the pre-BBA era, partners paid tax deficiencies arising from partnership operations. If a partnership underreported income or inflated its deductions, the Service had to collect the unpaid tax from the partners. This approach meant that a partnership transferee typically did not need to worry about inheriting a prior partnership’s income tax liabilities because there was generally nothing to inherit. Now, however, transferee liability rules could become relevant for transferees of partnerships because, as a default rule, BBA partnerships must bear unpaid tax arising from their operations. These rules generally look to non-tax law to determine whether the Service, as a creditor, can recover a transferor’s tax liability from a transferee.
As a procedural matter, the Service has several avenues to collect a transferor’s tax liabilities from a transferee. It could, for example, file an action in state or federal court asserting the Service’s rights as a creditor under state or federal law, such as state fraudulent transfer acts or the Federal Debt Collection Procedures Act. Alternatively, the Service could use the summary procedure for assessment set forth in section 6901 provided that it established that the transferee was liable for the transferor’s income tax liability.
The requisite liability under section 6901 can arise either “at law or in equity.” In general, liability “in equity” requires the Service to prove that the taxpayer transferred assets for inadequate consideration and was left insolvent. If the transferee paid consideration for the transfer, the transferee’s liability is reduced by that amount. Also, the transferee’s liability is generally limited to the value of assets that the transferee received.
Liability “at law,” on the other hand, can exist in several different scenarios. It can exist when the transferee agrees to assume the transferor’s liabilities. For example, even though a purchaser of assets generally takes free of the transferor’s liabilities, the Service could collect from the transferee if he or she agreed to assume the transferor’s liabilities. Liability at law could also exist “by operation of law, such as where a state statute requires the transferee of assets to pay the tax liability of the transferor.” This liability might exist when a state merger statute deems the successor entity to assume the liabilities of the constituent entities or when parties to an acquisition violate a state’s bulk sales law by failing to give notice of the transfer to creditors. Significantly, to establish transferee liability by agreement or by operation of law, the Service is not required to prove that the transferor is insolvent or that the transfer lacked consideration.
b. Application of Transferee Liability to the BBA. If any possible differences in the transferee liability laws among states are put aside, our first impression might be that the framework for determining when a person succeeds to a partnership’s tax liability under the BBA seems fairly straightforward. If a partnership engages in a transaction that makes its transferee liable for the transferor-partnership’s liabilities, the transferee would seemingly also be liable for an imputed underpayment arising from the transferor’s prior operations. Presumably this conclusion would be true regardless of whether the Service had already assessed the imputed underpayment at the time of the transfer.
Alas, this apparent simplicity is a mirage. The BBA provides a variety of tools (both for the Service and taxpayers) to shift the tax liability to the partners. These tools, in turn, change the identity of the person who bears the unpaid tax arising from the partnership’s operations and raise questions regarding when that unpaid tax is properly treated as a liability of the partnership for purposes of applying transferee liability law.
The range of possibilities can be illustrated by assuming that the Service audits Bold & Cold in 2022 with respect to its 2020 taxable year. For the sake of simplicity, assume that Bold & Cold’s partners did not change between 2020 and 2022—for each year, Amos, Breanna, and Chelsea were the only partners. The Service finds that Bold & Cold improperly deducted certain items during its 2020 taxable year and proposes an imputed underpayment against Bold & Cold based on the adjustments disallowing those deductions. Several possibilities exist to identify the parties who may bear the tax arising from those adjustments, which could in turn affect the application of the transferee liability rules. These possibilities are explored in turn.
First, assume that the partnership does nothing, that is, does not request modifications and does not make a push-out election. In that instance, the Service would eventually assess the imputed underpayment against the partnership, which the partnership would be required to pay. If the partnership engaged in a transaction with a third party, such as a merger or asset sale, presumably that third party could be liable as a transferee for the imputed underpayment, depending on state law and the parties’ agreement. For example, if Bold & Cold sold assets to Hot & Fresh, with Hot & Fresh assuming all the liabilities of Bold & Cold, presumably the Service could pursue Hot & Fresh as a transferee under a liability “at law” theory.
But even this relatively straightforward scenario is not as simple as it seems. Consider, for example, what could happen if Bold & Cold failed to pay the imputed underpayment within ten days after the Service made notice and demand. Under section 6232(f), if a partnership fails to pay an imputed underpayment within that time period, the Service may assess the tax against each adjustment year partner to the extent of his or her “proportionate share[s] of such amount.” If the Service did that here, could Hot & Fresh still be potentially liable as a transferee? In other words, despite the decision by the Service to assess the tax against each partner of Bold & Cold, is the tax still a liability of Bold & Cold for which Hot & Fresh as transferee could be responsible (operating under the assumption that Hot & Fresh agreed to assume all liabilities of Bold & Cold)? Although the language of section 6232(f)(4) may leave some room for doubt, as a matter of policy the answer to this question should be yes since Bold & Cold’s liability for the imputed underpayment remains unless its partners actually pay the liability.
Next, assume that the partnership obtains one or more modifications to the imputed underpayment because partners file amended returns taking into account their share of the adjustments and pay any tax arising from those adjustments. In that case, the partners would bear the tax, and the partnership’s transferee would escape liability to the extent that the partners took the tax into account as part of the modification process.
Finally, imagine that the partnership makes a push-out election, shifting the adjustments giving rise to the imputed underpayment to the reviewed-year partners. Because the partnership would no longer be liable for the unpaid tax, the partnership’s transferee presumably would not either. Instead, the Service would have to look to the reviewed-year partners and perhaps their transferees (if any) for payment.
The process of analysis becomes even more difficult if the implications of the cease-to-exist rules are considered. For example, the “transferee” could actually be the transferor for federal tax purposes—that is, the transferee could be a continuation of the transferor, which could make the transferee primarily liable for unpaid tax arising from the transferor’s prior operations. If the partnership “ceases to exist” at the time of the transaction, perhaps the acquirer would not be liable for unpaid tax from the partnership’s operations because the Service would pursue the partnership’s “former partners” rather than the transferor-partnership. But what if the partnership does not “cease to exist” at the time of the transaction, either because it continues operating after the transaction or because the acquirer is a continuation of the prior partnership? If the partnership continued operating after the transaction and the Service assessed an imputed underpayment against it arising from its operations prior to the transfer, presumably the acquirer could potentially be liable as a transferee of the partnership. But if the acquirer is itself a continuation of the partnership, the acquirer could be primarily liable for an imputed underpayment arising from the partnership’s prior operations rather than being liable as a transferee. Ultimately, these issues are difficult to analyze fully without further guidance on the parameters of the cease-to-exist rules.
2. Apply the Merger and Division Rules
Although Treasury and the Service did not take this approach, they could have applied the merger and division rules for purposes of determining whether a partnership “ceases to exist” under the BBA. This approach would mean that a partnership that terminates under the merger and division rules would also cease to exist under the BBA. Although this approach would have promoted consistency between Subchapter K and the BBA, it would have left several uncertainties and would arguably be inconsistent with the policy goals of the BBA.
a. Applying the Merger and Division Rules Would Have Left Unanswered Questions in Divisions and Transactions that Are Neither Mergers nor Divisions. One can identify many possible uncertainties if Treasury and the Service applied the merger and division rules, but two issues are obvious. First, the division rules allow two or more partnerships to be a continuation of a prior partnership. Treasury and the Service would need to clarify whether all of these partnerships are continuations of the prior partnership under the BBA or if instead only one of them (e.g., the divided partnership) has that status.
Second, Treasury and the Service would need to clarify the treatment of certain transactions that fall outside the merger and division rules. Recall that the merger and division rules address transactions that create two potential issues under section 708(b)(1): (1) one partnership could be a continuation of multiple prior partnerships and (2) multiple resulting partnerships could be continuations of one prior partnership. Nonmergers and nondivisions can raise these same issues. Thus, even if Treasury and the Service applied the merger and division rules, taxpayers and their advisors would still face uncertainty unless Treasury and the Service also clarified the treatment of nonmergers and nondivisions.
b. Applying the Merger and Division Rules Would Have Been Inconsistent with the Policy Goals Underlying the BBA. The merger and division rules are designed to provide certainty regarding the characterization of a transaction for federal tax purposes, as partnerships can “merge” or “divide” using many transaction forms under state law. They also provide tiebreakers when necessary, such as specifying which entity retains a prior partnership’s EIN. Because a single partnership cannot have two EINs, and two partnerships cannot have the same EIN, a tiebreaker mechanism is necessary.
The BBA, however, has different goals—centralization of the audit process and collection of tax from partnerships and their partners. Under prior law, the Service struggled both to audit partnerships and to collect tax from their partners. By providing a single contact point (the PR) with whom the Service could interact and allowing the Service to assess the tax against the partnership itself, the BBA is designed to make life easier for the Service. The rules for when a partnership “ceases to exist” should facilitate these policy goals to the extent possible while minimizing complexity and potential inequity to taxpayers. That is, the rules should lean toward providing the Service with additional avenues of collecting tax when possible without compromising the values of fairness and simplicity. An approach other than simply applying the merger and division rules better strikes this balance, as the determinations those rules are designed to make are less necessary in the context of the BBA.
The merger and division rules would also give rise to questionable results under the BBA. Take, for example, a partnership merger. Assume that Bold & Cold (owned by Amos, Breanna, and Chelsea) contributes all its assets to Hot & Fresh (owned by David and Elise) in exchange for membership interests. Bold & Cold then liquidates, distributing the Hot & Fresh interests to Amos, Breanna, and Chelsea so that Hot & Fresh is now owned by Amos, Breanna, Chelsea, David, and Elise. After the transaction, the members of Bold & Cold own 49% of post-transaction Hot & Fresh and the members of pre-transaction Hot & Fresh own 51%.
Under the merger rules, post-transaction Hot & Fresh would be a continuation of pre-transaction Hot & Fresh and Bold & Cold would terminate. This all-or-nothing approach seems unnecessary under the BBA, especially when the percentages are so close and no cash has changed hands. In reality, the two businesses simply combined their operations on nearly equal footing; to say that the resulting partnership is entirely a continuation of one and not the other seems somewhat artificial. Although this artificiality is often necessary under Subchapter K—which requires a determination of the steps of the transaction for tax purposes and which constituent partnership’s EIN continues—it is unnecessary under the BBA, which simply seeks to facilitate audits and collection of taxes. The result under the merger and division rules would become even more questionable if each membership group instead collectively owned 50% of post-transaction Hot & Fresh. In that instance, post-transaction Hot & Fresh would be a new partnership. One percent should not make this much of a difference under the BBA.
Consider a division example. This time, Bold & Cold (owned 33⅓% by Amos, Breanna, and Chelsea) distributes interests in Sandwich LLC to Amos (as a non-liquidating distribution) and Chelsea (in complete liquidation of Chelsea’s interest in Bold & Cold). Amos and Breanna remain members of Bold & Cold, which still operates its coffee business. Under the division rules, Bold & Cold would be the divided partnership because it is a continuation of pre-transaction Bold & Cold and transferred the assets under state law. If this analysis applied for purposes of the BBA, the Service would only be able to assess an imputed underpayment against Bold & Cold, even though Sandwich LLC operates a business of Bold & Cold and the members of Sandwich LLC (Amos and Chelsea) owned a substantial percentage of Bold & Cold when its operations gave rise to the adjustment that generated the unpaid tax.
The result in a partnership division would become even more problematic if pre-transaction Bold & Cold had an additional member. Assume that Amos, Breanna, Chelsea, and David each own 25% of pre-transaction Bold & Cold. Bold & Cold then splits its operations by distributing Sandwich LLC to Amos and Chelsea in complete liquidation of both of their interests in Bold & Cold. This time, neither partnership would be a continuation of pre-transaction Bold & Cold, and each would be a new partnership. If this analysis applied for purposes of the BBA, the Service could not assess an imputed underpayment against either partnership and would be limited to pursuing the former partners of Bold & Cold (Amos, Breanna, Chelsea, and David). The different results illustrated by these two examples seem difficult to justify in light of the BBA’s policy goals. Most tellingly, a one-percent change in ownership could completely alter the result. For example, if Amos had owned 26% of Bold & Cold and Chelsea still owned 25% (meaning Sandwich LLC’s members would have owned 51% of Bold & Cold), then Sandwich LLC would be a continuation of pre-transaction Bold & Cold. Again, one percent should not make this much of a difference under the BBA.
3. Ignore the Merger and Division Rules and Purely Apply Section 708(b)(1)
Based on the plain language of the BBA regulations, the merger and division rules do not apply for purposes of the BBA. Instead, the general continuation rule of section 708(b)(1) applies. Under this approach, a partnership is a continuation of a prior partnership if it satisfies section 708(b)(1)—that is, the resulting partnership continues to operate a business of the prior partnership and has at least one member from the prior partnership.
Presumably, this framework applies to mergers, divisions, and any other transaction involving one or more partnerships. For example, in a merger, the resulting partnership could seemingly be a continuation of each merging partnership for purposes of the BBA if it continued to operate a business of each merging partnership and had at least one member from each merging partnership. Stated differently, neither merging partnership would “cease to exist.” Thus, if Bold & Cold and Hot & Fresh merged their businesses with at least one member from each entity remaining invested, the post-transaction partnership would be a continuation of both Bold & Cold and Hot & Fresh.
A similar result would occur in a partnership division. In a division, multiple resulting partnerships could be continuations of the prior partnership so long as each such resulting partnership (1) carries on part of the prior partnership’s business and (2) has one or more members from the prior partnership. In other words, the prior partnership could continue to exist for purposes of the BBA in the form of two or more resulting partnerships. As a result, if Bold & Cold divided its coffee and sandwich businesses by forming Sandwich LLC and distributing it to Bold & Cold’s members, both Sandwich LLC and post-transaction Bold & Cold would be continuations of pre-transaction Bold & Cold.
Although this analysis seems straightforward enough, the regulations do not specify how this approach affects other aspects of the BBA. For example, which post-transaction partnerships would be liable for imputed underpayments attributable to the prior partnership and which could change the prior partnership’s PR? These and other questions are fairly easy to resolve in some cases but are more difficult in others.
a. Applying the BBA to Transactions Giving Rise to a Single Partnership that Is a Continuation of One or More Prior Partnerships. First let’s address the simpler scenarios: transactions that give rise to a single partnership that is a continuation of one or more prior partnerships. An example of this would be the merger of Bold & Cold and Hot & Fresh from above, in which the resulting entity is a continuation of both pre-transaction partnerships. In these types of transactions, the resulting partnership would presumably be liable for imputed underpayments arising from the prior operations of each prior partnership (which would include both Bold & Cold and Hot & Fresh, in this example); could appoint or remove the PR for the prior partnerships; and could make (via those PRs) AARs with respect to taxable years of those partnerships. The PR for the relevant prior partnership could, in turn, make a push-out election or request modifications to shift the adjustments giving rise to the tax to the members of the prior partnership whose operations lead to such adjustments. While this analytical framework seems fairly intuitive, Treasury and the Service should nonetheless issue guidance to clarify the issue for taxpayers.
Another possible issue is the application of the BBA when a partnership that is a continuation of multiple prior partnerships later engages in another transaction. For example, assume that Bold & Cold and Hot & Fresh merge, with the resulting partnership being a continuation of both Bold & Cold and Hot & Fresh. If the resulting partnership later merged with another partnership, a determination would have to be made whether the partnership that results from the second merger is a continuation of both Bold & Cold and Hot & Fresh, not to mention any other partnership that is a party to the second merger. This determination could raise difficult questions if, for instance, only the historic members of Bold & Cold continued as members of the partnership that results from the second merger. Would that entity be a continuation of both Bold & Cold and Hot & Fresh and, perhaps, one or more other parties to the second merger? Or would the determination depend on whether the historic members of Bold & Cold or Hot & Fresh continue as members of the partnership that results from the second merger, such that the resulting partnership be only a continuation of the prior partnership whose members became members of the resulting partnership?
Either of the above approaches seems workable. The first approach would have the benefit of administrative simplicity, since the Service would not have to look through to determine from which historic entity the continuing partners originated. But the second approach would arguably be fairer than the first, as it would avoid saddling the partnership resulting from the second merger with the liabilities of a partnership whose members have exited the enterprise. In either case, these concerns could be further reduced if the Service adopted a continuity-of-interest threshold, such as ten percent for purposes of determining whether to assess an imputed underpayment against a partnership. This would limit the instances in which having a minority rollover partner could cause the new partnership to be a continuation of a prior partnership. And these concerns would have a limited time horizon, given that the Service must usually adjust partnership-related items under the BBA within three years of the partnership’s return.
b. Applying the BBA to Transactions Giving Rise to Multiple Partnerships that Are Continuations of a Single Prior Partnership. A more troublesome situation is presented when multiple partnerships are continuations of a single prior partnership. This situation will frequently arise in partnership divisions, such as the division of Bold & Cold described above, in which a single partnership splits into multiple partnerships that could each be a continuation of that prior partnership. But it can also happen in a non-divisive transaction, such as if a partnership sold one business to another partnership in exchange for equity and distributed that equity to one or more of the selling partnership’s members. Either way, rules are needed to coordinate the application of the BBA among those multiple partnerships that are continuations of the prior partnership. Among other things, these rules should specify which partnership or partnerships are liable for imputed underpayments arising from the prior partnership’s operations, which partnership is entitled to notices under the BBA, which partnership can revoke the appointment of the prior partnership’s PR, which partnership can file an AAR with respect to a previous taxable year of the prior partnership, and which partnership’s partners would be liable for the imputed underpayment if the partnership failed to pay it within ten days after notice and demand from the Service. Most of these issues are fairly easy to resolve, with the exception of which partnerships are liable for an imputed underpayment attributable to the prior partnership’s operations.
Treasury and the Service could address the issue of appointing or removing a PR (which the prior partnership will generally have already appointed) in one of several ways. One option would be to apply an objective test, under which the resulting partnership whose members held the greatest percentage of the prior partnership or the resulting partnership that received the assets with the greatest net fair market value would be allowed to appoint or remove the PR for the prior partnership. But this option would likely bog down the audit process, as the Service would have to spend time verifying the application of these tests.
A better option would be to leave the rules unchanged and allow each resulting partnership to change the PR for the prior partnership. Under the regulations implementing the BBA, if the Service receives multiple revocations of a designation of a PR during a 90-day period, the Service may determine that a designation of a PR for the partnership is not in effect. In that event, the Service can designate a successor PR. Thus, if multiple partnerships attempted to replace the prior partnership’s PR, the Service could simply determine that the designation of a PR is not in effect and designate a successor PR. This determination would put the onus on the partnerships to negotiate an arrangement as to the identity of the PR for the prior partnership. This emphasis on deferring to the taxpayers’ contractual arrangements would be consistent with the principles underlying the BBA and would limit the administrative burden on the Service.
The process of modifying an imputed underpayment, making a push-out election, or filing an AAR could also remain unchanged, in that the PR for the prior partnership could retain the authority to take all these actions. The Service could likewise address notices to the resulting partnerships in a fairly simple manner. It could either send notices (such as a notice of administrative proceeding, notice of proposed partnership adjustment, or notice of final partnership adjustment) to each resulting partnership or to a single address that the resulting partnerships would be required to keep on file with the Service.
Selecting an approach to determine which resulting partnership (or partnerships) would bear an imputed underpayment arising from the prior partnership’s operations, whether as a result of an audit or an AAR, is more difficult. Answering this question would also largely address issues arising under section 6232(f), since the extent to which the Service could assess an imputed underpayment against a resulting partnership could also determine the extent to which the Service could assess that underpayment against that partnership’s partners if it failed to pay within ten days after notice and demand. Although the Service has several options with respect to this issue, this Article suggests that each resulting partnership should be jointly and severally liable for unpaid tax arising from the prior partnership’s operations.
(i) Impose Proportionate Liability on Each Resulting Partnership That Is a Continuation of the Prior Partnership. One approach is to impose proportionate liability on each resulting partnership based on a factor such as the fair market value (net of liabilities) of assets received from the prior partnership. Though this approach seems fair, it could impede the Service’s ability to collect tax and could increase the complexity of the BBA. Making each partnership liable only for its proportionate share of the unpaid tax would decentralize the tax-collection process. This result runs contrary to the purpose of the BBA, which is to centralize the audit process and reduce the burden on the Service. In addition, both taxpayers and the Service would need to determine each partnership’s proportionate share of the unpaid tax, which could be time consuming and subject to dispute.
(ii) Impose Full Liability on the Partnership Whose Members Owned the Greatest Percentage Interest in the Prior Partnership. Another option is to impose the entire unpaid tax on the resulting partnership whose members owned the greatest percentage of the capital and profits of the prior partnership. If the members of multiple partnerships owned the same percentage of the prior partnership, the Service could break the tie by determining which partnership received the assets with the greatest fair market value (net of liabilities) from the prior partnership.
The problem with this approach is its potential unfairness. Even if the members of two resulting partnerships had roughly the same interest in the prior partnership or two resulting partnerships received roughly the same amount of assets from the prior partnership, the rules would still impose the entire unpaid tax on one partnership. This approach could also increase opportunities for gaming, as taxpayers might attempt to impede the Service’s ability to collect tax by purposely placing valuable assets in a partnership against which the Service could not collect the tax under this rule. And, as with the proportionate liability approach, this approach would increase the complexity of the BBA audit regime.
(iii) Impose Full Liability on the Partnership That Received the Assets or Business to Which the Unpaid Tax Is Attributable. Alternatively, the Service could impose the entire unpaid tax on the resulting partnership that received the assets or business to which the adjustments giving rise to the unpaid tax are attributable. This approach would be attractive from a fairness perspective because it would impose the tax liability on the resulting partnership that is still benefitting from the assets or business that gave rise to the unpaid tax. But it would introduce significant complexity to the BBA audit regime by requiring the Service and taxpayers to associate each adjustment giving rise to unpaid tax with certain assets or a particular business and to determine which resulting partnership received those assets or that business. This process would be time consuming and could quickly give rise to disputes.
Imagine, for example, that Bold & Cold provided common services to both the sandwich and coffee business, such as incidental materials and supplies, accounting and bookkeeping services, or software for processing sale transactions. If Bold & Cold divided the sandwich and the coffee businesses and the Service later disallowed a deduction related to those shared services, the Service would then need to decide how to properly allocate that adjustment between the two businesses. If one partnership received the assets or personnel that gave rise to the disallowed deduction, the Service could assess the imputed underpayment against that partnership. But if neither partnership clearly acquired the assets that gave rise to the deduction (such as if the asset was exhausted or sold before the transaction or each entity acquired some of the assets that gave rise to the adjustment), the Service would need to determine whether the deduction is more properly attributable to the sandwich business or the coffee business (or both). This would be difficult if the businesses were interrelated or shared a broad range of facilities or resources, as one might ask whether there were in fact two separate trades or businesses while Bold & Cold owned them. If the Service could not clearly attribute the adjustment to one business over the other, it would then need to decide how to allocate the adjustment between the businesses using another method. While this type of analysis is not unprecedented in the tax law, it could create disputes between the Service and taxpayers and consume the Service’s already limited resources. Administrative burdens such as these are precisely what the BBA is designed to limit.
(iv) Impose Joint and Several Liability on Each Partnership That Is a Continuation of the Prior Partnership. A better approach would be to impose joint and several liability on each resulting partnership that is a continuation of the prior partnership within the meaning of section 708(b)(1), with each such partnership being potentially liable for the entire amount of unpaid tax. Consistent with the policy goals of the BBA, this approach would enhance the likelihood of collecting tax attributable to the prior partnership by giving the Service additional collection targets. In a merger with a rollover member from each merging partnership, the Service could pursue an operating business for the tax liabilities of either prior partnership, rather than having to chase the partners of one of the prior partnerships. In divisions, the Service could pursue one or more of several post-transaction partnerships (so long as they are continuations of the prior partnership under section 708(b)(1)) for liabilities arising from the prior partnership’s operations. This approach would also avoid the need to make determinations such as each partnership’s proportionate share of the unpaid tax or which assets or business gave rise to the adjustment.
To be sure, this approach is not without drawbacks. It could discourage potential partnership acquisitions and restructurings by potentially exposing the parties to broader liability for the prior partnership’s tax positions. Concerns about a party’s preexisting tax liabilities could also enhance the importance of tax-driven due diligence, which could increase transaction costs, pose further obstacles to partnership transactions, and place unsophisticated parties at a disadvantage. Perhaps most problematic, joint and several liability could unfairly impose the full tax liability on either (1) a resulting partnership whose members owned only a small percentage of the prior partnership or (2) a partnership that is a resulting partnership only because the members of the prior partnership own a small percentage of the resulting partnership. But Treasury and the Service could tailor the rules to address these concerns. The partnerships could still make a push-out election, which would resolve the issue by shifting the tax liability to the reviewed-year partners of the prior partnership. If we assume that at least one rollover member is necessary to satisfy section 708(b)(1), the partnership could more easily navigate the requirements for a push-out election because the rollover member might have closer ties with the reviewed-year partners; indeed, he or she may even be a reviewed-year partner. In addition, if one partnership paid an outsized amount, it could bring an action for contribution from the other partnership under state law.
If joint and several liability still proved too unpopular, Treasury and the Service could adopt an increased continuity-of-interest threshold of, say, ten percent of the capital and profits of the resulting partnership or the prior partnership. Under this approach, a partnership would be liable for an imputed underpayment arising from the operations of a prior partnership only if both of the following requirements are satisfied:
- One or more of the resulting partnership’s members collectively owned at least ten percent (or some other threshold) of the capital and profits of the prior partnership; and
- One or more of the prior partnership’s members collectively own at least ten percent (or some other threshold) of the capital and profits of the resulting partnership.
Although these would be arbitrary thresholds, they would limit the inequity that could otherwise arise in de minimis ownership scenarios.
V. Practical and Legal Options for Navigating the Cease-to-Exist Rules
Regardless of whether the Service adopts any or all of this Article’s proposals, advisors should consider both contractual and structural methods of protecting their clients from undue liability. This Part also considers possible legal challenges to the regulations and to a Service determination that a partnership ceases to exist, but ultimately concludes that such legal challenges are likely to fail.
A. Practical Methods of Protecting the Client
To protect the client, advisors should consider both contractual means of protection and alternative methods of structuring the transaction to avoid, to the extent possible, a prior partnership’s liability under the BBA. Because taxpayers “will generally not know at the time a partnership terminates whether the IRS will make a determination that the partnership has ceased to exist,” advisors must protect the client to the extent possible.
Regardless of the transaction structure, the parties should consider a range of contractual devices to allocate the risk of liability under the BBA. Acquirers will seek to limit their exposure to liability for prior taxable years, while sellers will seek to limit or eliminate their own exposure, or at least preserve their rights to file amended-return modifications (as opposed to a push-out election with a higher interest rate). For example, the acquirer might want to include the following provisions:
- A right of the acquirer to replace the PR when permitted under the BBA.
- A right of the acquirer to either require the PR to make a push-out election or to require the sellers to file amended-return modifications taking the adjustment into account.
- An agreement by the individual sellers (or the selling partnership’s individual partners, as applicable) to indemnify the acquirer for all amounts that are or may become due under the BBA and for attorneys’ fees and other costs that the acquirer may incur in navigating an audit.
- A right of the acquirer to file AARs for prior taxable years.
- An agreement by the sellers to cooperate with and provide information to the acquirer in connection with all matters related to the BBA audit regime. Ideally, the purchase agreement and the due diligence materials would include all the information necessary to make a push-out election and furnish the required statements to the reviewed-year partners and the Service.
Special contractual considerations can also arise in a business combination or division. The primary focus in each case should be to crystallize the parties’ agreement as to BBA liabilities if, for example, one or more of the merging partnerships continue or the prior partnership in a division continues to exist in the form of two or more partnerships.
In a merger involving partnerships with different owners, an advisor representing one merging partnership should ensure that tax risk attributable to the other merging partnership stays with that partnership’s members. The advisor could establish this protection by including indemnification obligations in the agreement that accomplishes the merger or in the partnership agreement for the post-merger partnership. The parties to the merger should also consider whether to include special provisions for who controls litigation related to pre-merger liabilities of one of the merging partnerships. If a particular partner, or group of partners, will ultimately bear any liability arising from the audit of the pre-merger year, presumably those partners will want the right to control, or at least provide input on, strategic decisions in the audit. In a divisive transaction, the advisor should ensure that the parties document their agreement as to which parties have the right to replace the PR and how parties will share liability for pre-division tax liabilities.
Advisors to acquirers could also consider alternative structures to avoid assuming BBA-related liabilities of the sellers. As we have seen throughout the Article, if a single person (e.g., a corporation, partnership, or individual) acquires all the equity interests in a partnership, the partnership might continue to exist for audit purposes even if it terminates under section 708(b)(1). To avoid this issue, the acquirer could purchase the LLC’s assets under state law or have the seller contribute the assets to a new LLC and sell that LLC to the buyer. Because the acquirer would never own the former partnership, the acquirer would presumably avoid taking the partnership’s potential liabilities under the BBA unless transferee liability rules otherwise make the acquirer liable.
If the transaction has an equity component, advisors should ensure, to the extent practicable, that the acquirer purchases assets (or a new single-member LLC) and avoids forming a partnership directly with the historic partners. For example, if the acquirer is purchasing assets from a partnership using a combination of cash and equity, the acquirer could form a new LLC and have the LLC acquire the assets, pay the cash, and issue membership interests to the selling partnership. The parties could then keep the selling partnership in existence to hold membership interests in the new partnership. In this instance, absent transferee liability or another theory of liability, the new partnership (and, thus, the acquirer) should not inherit BBA liabilities of the old partnership because it did not purchase the legal entity and has none of the partnership’s historic partners. Instead, the historic partners are only indirect partners of the new partnership. Depending on the Service’s interpretation of section 708(b)(1), this could preclude the new partnership from being a continuation of the selling partnership. But, as has been discussed, the Service has indicated the possibility of a partnership being a continuation of a prior partnership even without its historic partners. Alternatively, if the acquirer is a corporation, the corporation itself (or a newly formed subsidiary corporation that holds the newly acquired assets or owns the new single-member LLC) could issue the rollover equity to the selling group. Otherwise, if the corporation caused the new disregarded entity to issue the rollover equity directly to the historic partners, a partnership would come into existence and could be a continuation of the selling partnership under section 708(b)(1).
B. Possible Legal Challenges to the Regulations and a Service Determination that a Partnership Ceases to Exit
A taxpayer seeking to challenge the regulations or the Service’s exercise of discretion to determine whether a partnership has “ceased to exist” under the regulations would have several possible avenues, none of which is promising.
1. Possible Challenges to the Validity of the Regulations
An aggrieved taxpayer could attempt to invalidate Regulation section 301.6241-3(b) itself as procedurally defective under the Administrative Procedure Act (APA) and Motor Vehicle Manufacturers Ass’n of the United States, Inc. v. State Farm Mutual Automobile Insurance Co. or as an unreasonable interpretation of the statute and not worthy of Chevron deference. Under the APA and State Farm, taxpayers may challenge the adequacy of the process by which Treasury and the Service promulgated a regulation. Among other things, the APA requires an agency to “examine the relevant data and articulate a satisfactory explanation for its action including a ‘rational connection between the facts found and the choice made.’” This standard requires an agency to “respond to ‘significant’ comments, i.e., those which raise relevant points and which, if adopted, would require a change in the agency’s proposed rule.” Given that the preamble to the final regulations contains a substantial discussion of comments and the Service’s responses to comments regarding the cease-to-exist rules, a challenge under the APA seems likely to fail.
In addition, a taxpayer could argue that the regulation is not worthy of deference under Chevron. Under the two-step process in Chevron, a court defers to an agency’s interpretation of a statute if the intent of Congress is unclear and the agency’s interpretation is “based on a permissible construction of the statute.” “A permissible construction is one that is not ‘arbitrary, capricious, or manifestly contrary to the statute.’”
To begin with the statutory language, section 6241(7) states as follows: “If a partnership ceases to exist before a partnership adjustment under this subchapter takes effect, such adjustment shall be taken into account by the former partners of such partnership under regulations prescribed by the Secretary.” Section 6232(f) then references section 6241(7) for the determination of whether a partnership has “ceased to exist.” The BBA does not define “ceases to exist,” but the Joint Committee on Taxation’s explanation of the legislation contains the following description:
A partnership that terminates within the meaning of section 708(b)(1)(A) [now section 708(b)(1)] is treated as ceasing to exist. In addition, a partnership also may be treated as ceasing to exist in other circumstances or based on other factors, under regulations provided by the Secretary. For example, for the purpose of whether a partnership ceases to exist under new section 6241(7), a partnership that has no significant income, revenue, assets, or activities at the time the partnership adjustment takes effect may be treated as having ceased to exist.
On the face of the statute, it is unclear whether a partnership “ceases to exist” if it terminates under section 708(b)(1). A plain reading of “termination” versus “ceases to exist” indicates that the two terms should have some similar meaning, but one could also infer that Congress meant different things by using different terms. Although the Joint Committee on Taxation’s explanation indicates that the partnership would “cease to exist,” the explanation does not have the weight of pre-enactment legislative history and is not binding on taxpayers and the Service. Thus, the statute is ambiguous, and the question becomes whether Treasury and the Service’s construction of section 6241(7) is permissible.
Treasury and the Service’s construction of section 6241(7) appears reasonable, taking into account the difference in terminology between sections 708(b)(1) and 6241(7) and Congress’s purpose of facilitating tax assessment and collection in enacting the BBA. Certainly, one possible interpretation of section 6241(7) is that a partnership “ceases to exist” when, simply put, it no longer exists under Subchapter K. This would accord with the plain meaning of the term “ceases to exist.” But another plausible meaning is that Congress intended to depart from the rules for when a partnership terminates under section 708(b)(1), at least to the extent that such departure facilitates assessment and collection of tax from the partnership (which, again, was the purpose of the BBA). The Service could argue that one reasonable way of accomplishing this objective is to provide the Service with authority to deviate from section 708(b)(1) when necessary to facilitate collection activities. While this discretion-based solution is unsatisfying and unpredictable, a court would likely hesitate to invalidate Treasury and the Service’s construction of section 6241(7) for these reasons, especially since the construction relates to a topic (assessment and collection) clearly within the Service’s expertise.
2. Possible Challenges to the Service’s Exercise of Discretion Under the Regulations
Challenging the regulation itself is not the only avenue available to taxpayers. Assuming that the regulation is valid, the taxpayer could still argue that the Service abused its discretion in a particular instance by determining, or refusing to determine, that a partnership ceased to exist.
A threshold matter concerns whether a court would have jurisdiction to consider whether the Service abused its discretion. Presumably, the “partnership” (which might now be a disregarded entity in the Revenue Ruling 99-6 scenario) could assert that argument if it filed a petition for readjustment under section 6234. Section 6234(c) states as follows:
A court with which a petition is filed in accordance with this section shall have jurisdiction to determine all partnership-related items for the partnership taxable year to which the notice of final partnership adjustment relates, the proper allocation of such items among the partners, and the applicability of any penalty, addition to tax, or additional amount for which the partnership may be liable under this subchapter.
Arguably, the jurisdiction to determine the “proper allocation” of partnership-related items—which include imputed underpayments—“among the partners” would allow the court to consider whether the Service erred in determining, or refusing to determine, that the partnership ceased to exist, since that determination affects whether the adjustments or the liability for the imputed underpayment shift to the former partners. This interpretation would align with the “strong presumption that the actions of an administrative agency are subject to judicial review.” Judicial review of the Service’s determination would also be consistent with similar scrutiny of Service actions in other contexts. For example, courts have reviewed for abuse of discretion the Service’s decision to require a change in method of accounting when the taxpayer’s method “does not clearly reflect income”; to reallocate income or deductions among controlled entities under section 482; to take a particular collection action in the context of a collection due process hearing; to not extend the time for shareholders to file consents to a Subchapter S election; or to deny an extension to file an estate tax return.
If we assume that a court would have jurisdiction to consider whether the Service abused its discretion, the question then becomes what actions constitute an abuse of discretion. Based on cases from other contexts, taxpayers face a high hurdle in proving an abuse of discretion. Courts usually state, using various formulations, that the Service’s action must be “arbitrary, capricious, or unreasonable.” Typically this means the taxpayer loses. But courts have found an abuse of discretion where the Service disregards the Code or Regulations, makes a decision based on clearly erroneous factual assumptions, or makes a rubberstamp decision without considering the facts and circumstances.
As in other contexts, taxpayers challenging the Service’s determination that a partnership has, or has not, “ceased to exist” will face an uphill climb. As long as the Service applies the statute and regulations correctly, considers the taxpayer’s particular circumstances, and expresses legitimate collection concerns in support of the determination, the taxpayer is unlikely to prevail.
This is not to say that taxpayers could never prevail. If the Service refused, on a blanket basis, to ever determine that a partnership has ceased to exist, that refusal would likely constitute an abuse of discretion. Likewise, if the Service determined that a partnership continues to exist for audit purposes but based that decision on a mistaken understanding that the partnership had not terminated under section 708(b)(1), the taxpayer would have a strong argument for an abuse of discretion. This would be true whether the error was legal or factual in nature. A legal error could be a mistaken understanding that a partnership does not terminate in a Revenue Ruling 99-6 scenario, while a factual error could be a determination that an LLC continued to have two members when it had only one.
A more difficult question is whether a court would uphold the Service’s refusal to determine that a partnership “ceases to exist” for a particular class of transactions. For example, the Service might refuse, as a matter of practice, to determine that a partnership “ceases to exist” in a Revenue Ruling 99-6 transaction. Whether this is an abuse of discretion seemingly depends on whether the Service explains its reasons for denying the taxpayer’s request and takes into account the taxpayer’s particular circumstances, including the fact that the partnership had engaged in a Revenue Ruling 99-6 transaction. If the Service provides an explanation that contains no legal or factual misunderstandings, a court would likely uphold the Service’s exercise of discretion. But if the Service provides no explanation, the taxpayer would have a strong argument for an abuse of discretion.
VI. Conclusion
Taxpayers and Service personnel need additional guidance regarding when a partnership “ceases to exist” for purposes of the BBA and how a determination—or a refusal to determine—that a partnership “ceases to exist” interacts with the remainder of the audit rules created by the BBA. Taxpayers need increased certainty in this area so they can better predict the consequences of their transactions and plan accordingly. Service personnel could also benefit from this clarity, as it would elucidate their collection targets and clear up how the BBA treats now-disregarded entities or partnerships that have engaged in mergers or divisions.
This Article provides suggestions for improving the cease-to-exist rules. First, it suggests that a partnership should automatically cease to exist if it terminates under section 708(b)(1). This approach would tie together Subchapter K and the BBA and limit surprising results in transactions such as when a single buyer purchases all the interests in an LLC taxed as a partnership. Second, after concluding that Treasury and the Service properly declined to apply the merger and division rules, this Article nonetheless suggests that Treasury and the Service should clarify how the BBA interacts with those transactions. Among other things, this Article proposes that Treasury and the Service should hold all partnerships that are continuations of a prior partnership under section 708(b)(1) jointly and severally liable for unpaid tax arising from the prior partnership’s operations. To be sure, adopting these proposals would not eliminate all uncertainty under the cease-to-exist rules. Perhaps most importantly, substantial uncertainty would exist as to when a partnership terminates under section 708(b)(1), at least until the Service issues additional guidance on that point. But these changes would be a step along the path to predictability.
