Proposed IRC Section 956 Regulations Treat Obligations of A Foreign Partnership as Obligations of Its Partners
On September 1, 2015, the Internal Revenue Service (“IRS”) and Treasury Department issued temporary regulations and proposed regulations under Section 956 of the Internal Revenue Code of 1986, as amended (the “Code”) regarding the application of Section 956 of the Code to transactions involving partnerships. Current market practice is to treat an obligation of a foreign partnership as an obligation of a non-United States person. However, the new regulations generally provide that an obligation of a foreign partnership should be treated as obligations of the partners of the foreign partnership, and, thus, as United States property to the extent of the foreign partnership’s U.S. partners. These proposed regulations may impact the ability of foreign subsidiaries of a foreign partnership to provide credit support for an obligation of a foreign partnership in certain circumstances.