Comments Sought on Partnerships, Combined Pension Plans

The IRS requested public comment Wednesday on proposed regulations issued earlier on allocation of gain or loss in partnership mergers. In a separate notice, the Service invited comment on combined defined contribution and defined benefit plans under IRC § 414(x), on which the Service plans to issue guidance before it takes effect at the beginning of next year.


In Notice 2009-70, the IRS asked for general observations and posed particular questions to guide further study the Service and Treasury Department will undertake before finalizing regulations proposed in 2007 (REG-143397-05). The rules would address implications for partnership mergers under IRC § 704(c), which was enacted in the 1980s to prevent artificial shifting among partners of tax consequences arising from built-in gain or loss of contributed property upon the property’s disposition.


Section 704(c)(1)(A) requires income, gain, loss and deductions arising from property contributed to a partnership by a partner to be shared among the partners in a way that takes into account the difference between the property’s basis to the partnership and its fair market value at the time of the contribution. Subparagraph (B) provides that for such property distributed by the partnership within seven years of its contribution and then sold, the contributing partner is treated as recognizing gain or loss in an amount that would have been allocated to that partner under subparagraph (A) if the property had been sold for its fair market value at the time of distribution.


The proposed regulations raised further questions, however, of the treatment of layers of forward and reverse section 704(c) gain and loss, especially within tiered partnerships. Consequently, the Service in the notice posed 19 questions concerning the regulations’ application to single partnerships and layered tiers of partnerships, as well as divisions, further implications of mergers and international issues. It also invited comments on any other aspects of the issues not included in the questions.


Comments may be submitted by Feb. 22, 2010, by mail to Internal Revenue Service, PO Box 7604, Washington, DC 20044, Attn: CC:PA:LPD:PR (Notice 2009-70), Room 5203 or by e-mail to with “Notice 2009-70” in the subject line.


In Notice 2009-71, the IRS and Treasury Department requested comments on issues to be addressed in forthcoming regulatory guidance for section 414(x), which was added to the Code by the Pension Protection Act of 2006 and is effective for plan years beginning after Dec. 31, 2009. It allows small employers to combine within a single trust assets of a defined benefit and a defined contribution pension plan. Small employers generally are those that employed an average of between two and 500 employees on each business day throughout the preceding calendar year and employ at least two employees on the first day of the plan year (section 414(x)(2)(A)). Combined plans may also be treated as a single plan for purposes of certain reporting requirements. They are, however, subject to special requirements concerning benefits, contributions, vesting and nondiscrimination.


Comments may be submitted by Oct. 15 by mail to CC:PA:LPD:PR (Notice 2009-71), Room 5203, Internal Revenue Service, PO Box 7604, Ben Franklin Station, Washington, DC 20044 or by e-mail to with “Notice 2009-71” on the subject line.  


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