The IRS issued proposed regulations (“Prop. Regs.”) on Jan. 29, 2014 that would amend the rules regarding allocation of partnership liabilities and disguised sales. See, generally, REG-119305-11; FR Doc. 2014-01637 (Jan. 30, 2014). According to published reports, the Prop. Regs. if finalized as proposed, would negatively impact a variety of real estate investments which use the partnership vehicle. For REIT-based (real estate investment trust) investments, the Prop. Regs. would affect the structuring of REIT investments using the umbrella partnership (UPREIT).1
Under the liability allocation rules set forth in the Prop. Regs.:
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