IRS Announces Partnership Transition Relief

This new provision addresses leases of property in sale-in, lease-out transactions involving tax-exempt entities by suspending the deduction for "tax-exempt use losses" on "tax-exempt use property." This new provision also applies to certain partnerships.

After receiving comments from taxpayers suggesting that certain partnerships may have difficulty applying this provision for 2004, the IRS and the Treasury Department determined that difficulties may exist for 2004 returns with respect to certain property owned by partnerships or other pass-thru entities.

Notice 2005-29 announces that the IRS will not apply Section 470 to partnerships or other pass-thru entities for taxable years beginning before January 1, 2005, for property that is treated as tax-exempt use property solely as a result of the application of Section 168(h)(6). The notice also requests comments on several issues.

"We want to encourage taxpayers to continue to come forward with their comments regarding issues for which guidance under the American Jobs Creation Act should be provided," said Donald L. Korb, IRS Chief Counsel. "After listening to taxpayers' concerns regarding the application of Section 470 to pass-thru entities, we concluded that the limited transition relief provided in the notice is consistent with sound tax administration."