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Proposed regulations pending OIRA review, gain or loss from sales of U.S. partnership interests

Proposed regulations for OIRA review sales partnerships

OMB’s Office of Information and Regulatory Affairs (OIRA) today acknowledged receipt of proposed regulations from the Treasury Department as guidance concerning the measures under section 864(c)(8) concerning sales of U.S. trade or business partnership interests—measures enacted by the new U.S. tax law (Pub. L. No. 115-97, date of enactment December 22, 2017), the law that is at times referred to as the “Tax Cuts and Jobs Act” (TCJA).


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The proposed regulations pending OIRA review are described on the OIRA website as follows:

  • RIN: 1545-BO56: Section 864(c)(8) sales of U.S. trade or business partnership interests 

Regulations addressing gain or loss of foreign persons from the sale or exchange of certain partnership interests


Treasury regulations that are identified as “major” regulations are subject to review by OMB’s OIRA before issuance, pursuant to Executive Order 13771. Read TaxNewsFlash


The new law amended section 864(c) to treat gain or loss on a sale of a partnership interest as effectively connected with a U.S. trade or business to the extent that a foreign corporation or foreign individual that owns the partnership interest (whether directly or indirectly through other partnerships) would have had effectively connected gain or loss had the partnership sold its underlying assets.

The new law adopts a look-through rule somewhat similar to that provided in section 897(g) to the sale of all partnership interests, not just those that hold U.S. real property interests.

Specifically, the new law provides that gain or loss from the sale, exchange, or other disposition of a partnership interest is effectively connected with a U.S. trade or business to the extent that a partner that is a foreign individual or foreign corporation would have had effectively connected gain or loss if the partnership had sold all of its assets at fair market value on the date of the exchange. For this purpose, the gain or loss from the hypothetical asset sale by the partnership is allocated to interests in the partnership in the same manner as nonseparately stated items of income or loss. The amount of the gain or loss treated as effectively connected income under the provision is reduced by the amount so treated with respect to U.S. real property interests under section 897.

While the provision applies to gain or loss from the sale, exchange, or other disposition of the partnership interest, it gives broad regulatory authority to determine the appropriate application of the provision, including to various corporate nonrecognition transactions, such as contributions, liquidations, and reorganizations.

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