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or 707(b)(1), subject to certain modifications. Secs. 1.752-
1(a)(3), 1.752-4(b)(1), Income Tax Regs. Those modifications
include substituting “80 percent or more” for “more than 50
percent” each place it appears in those sections. Sec. 1.752-
4(b)(1)(i), Income Tax Regs.
However, in determining whether a partner bears economic
risk of loss on a partnership liability, the regulations also
provide the following exception:
(iii) Related partner exception. Notwithstanding
paragraph (b)(1) of this section (which defines related
person), persons owning interests directly or indirectly in
the same partnership are not treated as related persons for
purposes of determining the economic risk of loss borne by
each of them for the liabilities of the partnership. This
paragraph (iii) does not apply when determining a partner’s
interest under the de minimis rules in � 1.752-2(d) and (e).
Sec. 1.752-4(b)(2)(iii), Income Tax Regs. Both parties dispute
the effect of this exception (related partner exception) in the
determination of whether Indeck Overseas bore any economic risk
of loss with regard to the liability incurred with the purchase
of the aircraft.
We interpret the policy behind the related partner
exception as preventing the shifting of basis from a party who
bears actual economic risk of loss to one who does not. This
means that losses are allowed, to the extent of basis, to the
party who is actually exposed to the risk of economic loss
through the application of statute, organizational documents, or
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Last modified: May 25, 2011