IRS Rules on Allocations of Joint Venture Losses Among Partners in Different Countries

According to the JV Agreement, U.S. Partner and Foreign Parentwould receive both üxed and variable payments related to their contribution amounts.The IRS further held that theallocationofJV'soperating loss did not have economic eúect (within the meaningofReg. 1.704ÿ1(b)(2)(ii))because none of t...

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Bibliographic Details
Published in:Journal of Taxation 2017-12, Vol.127 (6), p.281-283
Main Authors: st, David L, Geils, Edwin, Grais, M, Hodges, Charles E
Format: Article
Language:English
Subjects:
Capital expenditures
Foreign partnerships
Joint ventures
Losses
Net losses
Parent companies
Partnership agreements
Partnership allocations
Partnership interest
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Summary:According to the JV Agreement, U.S. Partner and Foreign Parentwould receive both üxed and variable payments related to their contribution amounts.The IRS further held that theallocationofJV'soperating loss did not have economic eúect (within the meaningofReg. 1.704ÿ1(b)(2)(ii))because none of the three requirements were met-JV did not maintain capital accounts consistent with Reg. 1.704ÿ 1(b)(2)(iv),provide for the liquidationof itspartners' interests inaccordancewith positive capital account balances, or provide a DRO.[...]the IRS concluded that the operating loss deductionmust be allocated in accordancewith thepartners' interests in the partnership, reýecting themanner in whichthepartners agreedtoshare the economic burden corresponding to that loss.[...]the IRS found that U.S. Partner and Foreign Parent, as creditors under Country 1 law, had priority over Country 2 Partner and Country 1 Partner in receiving assets fromJV upon liquidation and U.S. Partner and Foreign Parent also had first rights to the cash flow of JV.
ISSN:0022-4863