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IRS Revenue Ruling 2004-33: An Overview

The IRS Revenue Ruling 2004-33 is a document that guides the federal income tax treatment for certain transactions involving interests in partnerships. The ruling was issued to clarify their position and relieve earlier, more restrictive regulations on such transactions. The IRS revenue ruling 2004-33 can be summarized as follows:

Who It Applies To

The IRS views the partnership interest at risk (IRAP) rules as applying to all partners who participate in the management of an IRAP partnership, regardless of their level of participation or degree of control over decision making.

Contributions

A partner who makes a capital contribution to an IRAP cannot avoid its status by returning the contributed asset within 90 days unless its value is restored.

The Effect of the Ruling on Taxpayers

IRS revenue ruling 2004-33 provides taxpayers with upbeat guidance for structuring their transactions involving interests in partnerships. The IRS’ new view will affect many taxpayers, as they are likely currently treating these types of transactions incorrectly under the old regulations. Furthermore, this change enables some partnership structures to be changed to take advantage of the new guidance, potentially resulting in a lower tax burden for taxpayers.

In conclusion, IRS revenue ruling 2004-33 provides much-needed clarity for partnerships and their partners.