Partnership Debt Sharing Under Section 752

Author: James R. Hamill

Per the IRS Education Provider Standards this course must be COMPLETED by 12/31/2026 to receive credits. NOTE: Go to My Professional Profile in your CCH CPELink account settings to ensure your name, and PTIN number; matches your PTIN card

Section 752 treats an increase in a partner’s share of partnership debt as a contribution of money to the partnership. It also treats a decrease in a share of partnership debt as a deemed distribution of money from the partnership to the partner. The debt share then affects the partner’s basis in his or her interest and can affect the ability to deduct losses and the tax treatment of distributions. Section 752 is silent with respect to the determination of a partner’s share of debt. In response to a district court case in which a partner was able to successfully argue that a guarantee did not create recourse debt, the Treasury Department was granted legislative authority to write regulations determining the share of partnership debt. The regulations define recourse and nonrecourse debt, and establish rules by which a return preparer determines each partner’s share of both recourse and nonrecourse debt. These determinations are part of the K-1 tax reporting to the partners each year. In this two-hour CPE course nationally recognized tax expert and instructor James Hamill, CPA, Ph.D. will explain why Congress first granted authority to the Treasury to write regulations to overturn the district court’s decision in Raphan, and how those regulations determine the classification of debt and the determination of member’s shares of debt. You will learn the mechanics and the reporting of partnership liabilities.

Publication Date: January 2024

Designed For
CPAs, EAs, tax preparers and other tax professionals with responsibility for preparation of partnership tax returns or consulting involving partners and partnerships.

Topics Covered

• What is a liability for purposes of Section 752
• Why Debt 'Shares' Matter
• History of Current Regulations
• How Can a Risk of Loss Arise?
• Sharing Recourse Liabilities
• Zero Value - Liquidation Approach
• Payment Obligation Principles
• Bottom Dollar Guarantees
• 'Net' Payment Computations
• Limited Partner Risk of Loss
• LLC Member Risk of Loss
• Partner Nonrecourse Debt
• Nonrecourse Debt Shares
• §704(b) Minimum Gain Illustration
• Recourse Versus - Nonrecourse Deductions
• Nonrecourse Debt

Learning Objectives

• Recognize and apply what is included as a liability for Section 752 purposes
• Identify the four risk-of-loss scenarios that define recourse debt
• Determine shares of recourse and nonrecourse debt
• Identify the year the Treasury release proposed regulations that would dramatically change how we measure debt shares
• Identify the percent of the partnership assets that are considered worthless under the zero-value liquidation approach

Level
Intermediate

Instructional Method
Self-Study

NASBA Field of Study
Taxes (2 hours)

Program Prerequisites
A basic understanding of partnerships.

Advance Preparation
None