The allocation of a partnership’s liabilities is often important, because a partner’s share of a partnership’s liabilities is included in the tax basis of his partnership interest, and a partner’s tax basis in his partnership interest can determine the extent to which he can receive tax-free distributions or allocations of losses from a partnership. In addition, if a partner’s share of a partnership’s liabilities is reduced, the partner may recognize taxable income as a deemed distribution in excess of basis.

In October, 2019, the Treasury Department finalized a set of regulations that will have an important impact on how liabilities are allocated when a partner guarantees partnership debt.

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