- 13 -
The preamble to the final regulations contains the following
warning to taxpayers:
in light of the increased flexibility under an elective
regime for the creation of organizations classified as
partnerships, Treasury and the IRS will continue to
monitor carefully the uses of partnerships in the
international context and will take appropriate action
when partnerships are used to achieve results that are
inconsistent with the policies and rules of particular
Code provisions or of U.S. tax treaties. [T.D. 8697,
1997-1 C.B. at 216.]
The preamble to the proposed regulations contains a substantially
identical warning, except that the promise is to “issue
appropriate substantive guidance” rather than “take appropriate
action” with regard to the use of partnerships for what Treasury
and IRS consider improper purposes in the international context.
See 61 Fed. Reg. at 21990 (May 13, 1996). We surmise that the
change in language signaled an intent not only to address
perceived abuses in the use of partnerships in amended
regulations, revenue rulings, or other public pronouncements
that, generally, would have prospective effect but also to
challenge those perceived abuses on audit. For no apparent
reason, the warning did not extend to allegedly inappropriate
uses of disregarded entities, the type of organization involved
in this case.
7(...continued)
Tax Notes 1141, 1143-1144 (May 26, 1997); Mundstock, A Unified
Approach To Subchapters K & S, 11 n.35 (2002). Neither party has
challenged the validity of all or any portion of the regulations.
Therefore, for purposes of this case, we accept (without
deciding) that the regulations are valid.
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