On April 15, 2016, the IRS released a memorandum addressing the impact of so-called “bad boy” guarantees on the characterization of underlying partnership debt as recourse vs. nonrecourse under Section 752 of the Internal Revenue Code. “Bad boy” guarantees are principally used in nonrecourse real estate mortgage financing transactions, especially those utilizing commercial mortgage-backed securities or securitized financing, to protect a lender against certain bad acts that are either in the control of the borrower or are customarily viewed as events where liability should be shifted to the borrower and its principals (such as fraud, material misrepresentation, and environmental issues).

Reversing its position from guidance issued earlier this year, the IRS concluded that the “bad boy” guarantees considered generally do not cause the underlying partnership obligation to fail to qualify as a nonrecourse liability of the partnership until such time as one of the “bad boy” events actually occurs (causing the guaranteeing partner to become liable for the partnership debt).

Importantly, IRS indicated that the applicable tax analysis is ultimately dependent on all the relevant facts and circumstances. Therefore, taxpayers should carefully review their financing arrangements in the context of their overall transaction and applicable circumstances, even if the terms of such financing arrangements appear similar to the terms covered by the said memorandum.

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Beginning on February 16 of this year, the rate of tax withholding required by the Foreign Investment in Real Property Tax Act (FIRPTA) will increase from 10% to 15%.  FIRPTA imposes federal tax on the sale of an interest in real property located in the United States by a foreign seller. Continue Reading FIRPTA Tax Withholding Set to Increase Effective February 16, 2016

Earlier today our colleagues in the Energy Technology practice posted an article regarding this morning’s congressional agreement on a year-end spending and massive tax deal that will bring 5-year extensions to both the Investment Tax Credit and Production Tax Credit. If passed through Congress and signed into law by President Obama, these agreements have major implications for commercial and residential real estate.

Click here to access the full article and see what the buzz is all about!