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TAX MATTERS

5. Whether business was conducted in LINE
the joint names of the parties; ITEMS
6. Whether the parties filed federal
partnership returns or otherwise For these full stories plus the latest tax news, visit
represented to the IRS or to persons journalofaccountancy.com and thetaxadviser.com.
with whom they dealt that they were
joint venturers; Prop. regs. identify syndicated conservation
7. Whether separate books of account easements as listed transactions
were maintained for the venture; and Although the IRS disagrees with court decisions that its
8. Whether the parties exercised mutual use of subregulatory guidance to identify certain ease-
control over and assumed mutual ments as listed transactions violated the Administrative Procedure Act,
responsibilities for the enterprise. it issued proposed regulations to so designate them.
Holding: Of these factors, the court
found that only the third weighed in Final regs. issued on centralized partnership audit regime
favor of a finding that a partnership The regulations provide an exception from the procedures for
existed between WTS and PLI; i.e., partnership-related items involving a “special enforcement matter” and
that PLI’s rights under the loan docu- rules for certain imputed underpayments and related adjustments.
ments and additional interest agreement
resembled a preferred equity interest and Domestic filing exception requirements modified in draft
gave it control over the income and capi- Scheds. K-2, K-3
tal associated with the Rome property Versions of the schedules reporting items of international tax relevance
that would remain in place even if the to partners and S corporation shareholders for 2022 modify a filing
advances under the loan documents were exception for certain domestic partnerships and
refinanced and/or prepaid. S corporations.
However, for the remaining fac-
tors, the legal form of the agreements Clean energy project prevailing wage rate
between WTS and PLI and the parties’ and apprenticeship requirements issued
stipulation that the loan agreements The IRS provided initial guidance on provisions
were properly treated as debt weighed enacted by the Inflation Reduction Act, P.L. 117-169,
heavily against finding any joint venture that allow increased credit or deduction amounts.
between WTS and PLI. For instance,
in evaluating the second factor, the
court found that PLI contributed little
of value to a potential venture, in a property, this exposure arose in PLI’s IRS and may limit the case’s direct
manner similar to the IRS’s analysis in capacity as a lender. Choosing to lean on applicability to other taxpayers.
GCM 36,702. Despite PLI’s having the parties’ stipulation that the loan from Absent such a stipulation, presum-
advanced substantially all the capital PLI to WTS was genuine indebtedness, ably, taxpayers and the IRS would
used by WTS to develop the Rome the court did not consider whether, if the need to deal with a more rigorous
property, because those advances were parties’ stipulations were set aside, inad- debt-versus-equity analysis based on the
stipulated to be bona fide indebted- equate capitalization might be grounds facts and circumstances of the particular
ness for tax purposes, PLI could be to view PLI as holding an equity interest arrangement. For example, inadequate
viewed as providing nothing (capital or in the Rome property. or “thin” capitalization might be taken
services) under the additional interest Ultimately, the court rejected the into account as a factor that sways the
agreement in exchange for an equity IRS’s argument that a partnership analysis toward equity treatment.
interest in a partnership. existed between WTS and PLI. ■ Deitch, T.C. Memo. 2022-86
Considering the fourth Luna factor, Observations: This case may
the court noted that PLI was not provide taxpayers considering similar — Grace Kim, J.D., LL.M., and Whit
obligated under the parties’ agreements loan arrangements a hint as to how the Cocanower, J.D., LL.M., are with Grant
to share in any operating losses with IRS may seek to recharacterize those Thornton LLP in Washington, D.C.
respect to the Rome property. Although arrangements. The stipulations by the
PLI had an economic exposure to parties effectively served as concessions To comment on this column, contact Paul
any decline in the value of the Rome of significant issues in the case by the Bonner, the JofA’s tax editor. ■

36 | Journal of Accountancy February 2023