Partnership Taxation in Transition : Of Form and Substance and Economic Risk

The congressional mandate for revised regulations on liability allocation among partners was intended to prevent partners from allocating liabilities among themselves, and thus enabling them to claim deductions based on how the liabilities increased their outside bases in the partnership, without regard to whether they shared proportionately any economic risk of having to pay the liabilities. New regulations on partnership liability allocation, pretending fidelity to the legislative mandate, seem in important respects to condone liability sharing without regard to economic risk. This article argues that the safe harbor of the new regulations is best understood as limited by economic risk restrictions on liability allocations