Definition of Limited Partner for Purposes of Material Participation Rules Proposed

The IRS has proposed regulations regarding the definition of an "interest in a limited partnership as a limited partner" for purposes of determining whether a taxpayer materially participates in an activity under Code Sec. 469. The proposed regulations affect individuals who are partners in partnerships. The regulations are proposed to apply to tax years beginning on or after the date of final regulations are published in the Federal Register.

The proposed regulations provide that an interest in an entity will be treated as an interest in a limited partnership under Code Sec. 469(h)(2) if: (a) the entity in which the interest is held is classified as a partnership for federal income tax purposes under Reg. §301.7701-3; and (b) the holder of the interest does not have rights to manage the entity at all times during the entity's tax year under the law of the jurisdiction in which the entity was organized and under the governing agreement. The proposed rules concerning an interest in a limited partnership are provided solely for purposes of Code Sec. 469 and no inference is intended that the same rules would apply for any other provisions of the tax code requiring a distinction between a general partner and a limited partner.

Comments Requested

Written or electronic comments and requests for a public hearing must be received by February 27, 2012. Submissions should be mailed to: CC:PA:LPD:PR (REG-109369-10), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, D.C. 20044. Submissions may be hand-delivered Monday through Friday between the hours of 8:00 a.m. and 4:00 p.m. to: CC:PA:LPD:PR (REG-109369-10), Courier's Desk, Internal Revenue Service, 1111 Constitution Avenue NW., Washington, D.C., or sent electronically, via the Federal eRulemaking Portal at http://www.regulations.gov/(IRS REG-109369-10).

Proposed Regulations, NPRM REG-109369-10, 2011FED ¶49,509