Baker McKenzie's North America Tax Practice Group has prepared a Client Alert on the final and proposed base erosion and anti-avoidance tax (BEAT) regulations issued by Treasury and the IRS on December 2, 2019.

The final regulations follow the aggregate approach as set forth in the prior proposed regulations that treat partnerships as aggregates of their partners for purposes of applying the BEAT. However, the final regulations materially flesh out this rule and its often unintuitive results by treating partners as directly engaging in BEAT-triggering transactions with other partners, creating negative BEAT consequences on routine transactions such as a contribution to a partnership and a distribution from a partnership.

In explaining this approach, the final regulations provide insights on how a "base erosion payment" and "base erosion tax benefits" arise within various and different partnership contexts, including, but not limited to, contributions, distributions, and partnership allocations of income or deductions.

 

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