[4830-01-p]
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 9945]
RIN 1545-BO81
Guidance Under Section 1061; Correction
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final rule; correction and correcting amendments.
SUMMARY: This document contains corrections to Treasury Decision 9945 published
in the Federal Register on Tuesday, January 19, 2021. Treasury Decision 9945 issued
final regulations that recharacterize certain net long-term capital gains of a partner that
holds one or more applicable partnership interests as short-term capital gains.
DATES: These corrections are effective on [INSERT DATE OF PUBLICATION IN THE
FEDERAL REGISTER] and for dates of applicability, see §§ 1.702–1(g), 1.704–3(f),
1.1061–1(b), 1.1061–2(c), 1.1061–3(f), 1.1061–4(d), 1.1061–5(g), 1.1061–6(e), and
1.1223–3(g).
FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Alta Li of the
Office of Associate Chief Counsel (Passthroughs and Special Industries) at (202) 3175279 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
The final regulations (TD 9945) subject to these corrections are issued under
section 1061 of the Internal Revenue Code.
Corrections to Publication

Accordingly, the final regulations (TD 9945) that are the subject of FR Doc.
2021–00427, published on Tuesday, January 19, 2021, are corrected as follows:
1. On page 5455, in the first column, in the seventh line of the column the language
“make” is corrected to read “made”.
2. On page 5455, in the first column, in the fifteenth line of the column the language
“are” is corrected to read “at”.
3. On page 5456, in the first column, the fourteenth line of the column is corrected
to read “terms, priority, type and level of risk”.
4. On page 5457, in the first column, in the last line of the column the language
“allocation” is corrected to read “allocations”.
5. On page 5459, in the first column, the thirteenth line from the bottom of the
column is corrected to read “other partner, other than”.
6. On page 5459, in the first column, the fifth line from the bottom of the column is
corrected to read “advances made by another partner in the”.
7. On page 5459, in the first column, the fourth line from the bottom of the column is
corrected to read “partnership (or any Related Person with respect to such”.
8. On page 5459, in the first column, the third line from the bottom of the column is
corrected to read “other partner, other than the partnership) to a”.
9. On page 5459, in the second column, the ninth line of the column is corrected to
read “loan or advance made by another partner (or”.
10. On page 5459, in the second column, the tenth line of the column is corrected to
read “any Related Person with respect to such other partner, other than the”.
11. On page 5463, in the third column, the second line of the second full paragraph
is corrected to read “that once a partnership interest qualifies as”.
12. On page 5465, in the first column, the twelfth line of the first full paragraph is
corrected to read “Assets; and (vi) options or derivative”.

13. On page 5465, in the third column, in the twelfth line of the second full
paragraph the language “APIs” is corrected to read “API”.
14. On page 5467, in the first column, in the ninth line from the bottom of the
column, the language “API Distributed” is corrected to read “Distributed API”.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Correction to the Regulations
Accordingly, 26 CFR part 1 is corrected by making the following correcting
amendments:
PART 1 – INCOME TAXES
Paragraph 1. The authority citation for part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.1061–1(a) is amended by revising the definition for
“Passthrough Entity” to read as follows:
§1.1061-1 Section 1061 definitions.
*****
Passthrough Entity means a partnership, trust, estate, S corporation described in
§1.1061-3(b)(2)(i), or a passive foreign investment company described in §1.10613(b)(2)(ii).
*****
Par. 3. Section 1.1061-3 is amended by:
1. Revising the first sentence of paragraph (c)(3)(v)(A).
2. Revising paragraph (c)(3)(v)(B) introductory text.
3. Revising the heading of paragraph (c)(6)(i)(C).
4. Removing the language “PRS’s” in the fifth sentence of paragraph (c)(6)(i)(C)
and adding the language “PRS” in its place.

5. Revising paragraph (d)(3).
The revisions read as follows:
§1.1061–3 Exceptions to the definition of an API.
*****
(c) * * *
(3) * * *
(v) * * *
(A) * * * For purposes of the Section 1061 Regulations, an allocation is not a
Capital Interest Allocation to the extent the allocation is attributable to the contribution of
an amount of capital to a partnership that, directly or indirectly, results from, or is
attributable to, any loan or other advance made or guaranteed, directly or indirectly, by
the partnership or another partner in the partnership (or any Related Person with
respect to such persons), except to the extent a loan or advance is described in
paragraph (c)(3)(v)(B) of this section. * * *
(B) * * * Paragraph (c)(3)(v)(A) of this section does not apply with respect to an
allocation attributable to a contribution made by an individual service provider that,
directly or indirectly, results from, or is attributable to, a loan or advance from another
partner in the partnership (or any Related Person with respect to such other partner,
other than the partnership) to such individual service provider if the individual service
provider is personally liable for the repayment of such loan or advance. A contribution
made by an individual service provider includes a contribution made by an entity that is
wholly owned by, and disregarded as separate from, the individual service provider as
described in §1.1061-2(a)(1)(v), including a contribution attributable to a loan or
advance made to the disregarded entity by another partner in the partnership (or any
Related Person with respect to such other partner, other than the partnership) if the
individual service provider is personally liable for the repayment of any and all borrowed

amounts that are not repaid by the disregarded entity. For purposes of this paragraph
(c)(3)(v)(B), an individual service provider is personally liable for the repayment of a
loan or advance made by another partner (or any Related Person with respect to such
other partner, other than the partnership) if—
*****
(6) * * *
(i) * * *
(C) GP’s Capital Interest Allocation Analysis. * * *
*****
(d) * * *
(3) Acquirer not a service provider. At the time of the purchase, the acquirer has
not provided, does not provide, and does not anticipate providing services to, or for the
benefit of, the target partnership, directly or indirectly, or any lower-tier partnership in
which the target partnership directly or indirectly holds an interest.
*****
Par. 4. Section 1.1061-4 is amended by:
1. Removing the language “Share amount” in the first sentence of paragraph
(b)(5)(ii) and adding the language “Share Amount” in its place.
2. Revising paragraph (b)(9)(i)(B).
3. Removing the language “applying” in paragraph (b)(9)(ii) introductory text and
adding the language “computing” in its place.
4. Removing the language “Three Year API” in paragraph (c)(1)(i)(C)(2) and
adding the language “API Three Year” in its place.
5. Removing the language “Gain amount” in the first sentence of paragraph
(c)(1)(i)(D) and adding the language “Gain Amount” in its place.
6. Revising the third sentence of paragraph (c)(1)(ii)(B).

7. Revising paragraph (c)(1)(iii)(B).
8. Removing the language “Gain of $300” in the first sentence of paragraph
(c)(1)(iii)(C) and adding the language “of $300” in its place.
9. Removing the language “year causing” in the third sentence of paragraph
(c)(2)(ii) and adding the language “year, causing” in its place.
10. Removing the language “the $1000” in the fifth sentence of paragraph
(c)(2)(iii) and adding the language “the $1,000” in its place.
The revisions read as follows:
§1.1061–4 Section 1061 Computations.
*****
(b) * * *
(9) * * *
(i) * * *
(B) Determination that the Lookthrough Rule applies to the disposition of a
Passthrough Interest. Paragraph (b)(9)(i)(A) of this section similarly applies with
respect to a Passthrough Interest issued by an S corporation or a PFIC to the extent
that the Passthrough Interest is treated as an API.
*****
(c) * * *
(1) * * *
(ii) * * *
(B) * * * Under paragraph (a)(4)(ii) of this section, A’s API Three Year Disposition
Amount is $100, which is the amount of long-term capital gain that A recognized upon
disposition of the API held for more than three years. * * *
*****
(iii) * * *

(B) Determination of A’s One Year Gain Amount. Under paragraph (a)(2) of this
section, A’s One Year Gain Amount is $900, which is an amount equal to A’s $100 API
One Year Distributive Share Amount from PRS1 and A’s $600 API One Year
Distributive Share Amount from PRS2 (a combined net API One Year Distributive Share
Amount of $700) plus A’s $200 API One Year Disposition Amount.
*****
Par. 5. Section 1.1061–5 is amended by:
1. Removing the language “of this section” in the fourth sentence of paragraph
(f)(1) and adding the language “of this section;” in its place.
2. Revising paragraphs (f)(2)(i) and (ii) and (f)(3).:
The revisions read as follows:
§1.1061-5 Section 1061(d) transfers to related persons.
*****
(f) * * *
(2) ***
(i) Facts. A, B, and C are equal partners in GP, a partnership. GP holds only
one asset, an API in PRS1 which is an Indirect API as to each of A, B, and C. Each of
A, B, and C provides services in the ATB in connection with which GP was transferred
its API in PRS1. A and B contribute their interests in GP to PRS2 in a section 721(a)
exchange for interests in PRS2.
(ii) Application of section 1061(d). Because the contribution by each of A and B
of its interest in GP to PRS2 is an exchange in which no gain is recognized by either A
or B, the contribution is not a transfer as described in paragraph (b) of this section; thus
section 1061(d) does not apply to A’s and B’s contribution. However, the API remains
an API in the hands of PRS2 under §1.1061-2(a)(1)(i).

(3) Example 3: Transfer of an API to a Section 1061(d) Related Person. A has
held an API in GP, a partnership, for four years. A transfers the API to a Section
1061(d) Related Person described in paragraph (e) of this section in exchange for $100
of cash, resulting in A recognizing long-term capital gain of $100. Because this is a
transfer described in paragraph (b) of this section, section 1061(d) applies to the
transfer of A’s API and A must determine its Section 1061(d) Recharacterization
Amount under paragraph (c) of this section. If, immediately prior to A’s transfer of the
API, the partnership had sold all of its assets in a fully taxable transaction for cash equal
to the fair market value of the assets, A’s share of the net long-term capital gain
(excluding amounts not taken into account for purposes of section 1061 under §1.10614(b)(7)) from assets held for three years or less would have been $120. Thus, A’s
Section 1061(d) Recharacterization Amount is $120. As a result, A’s $100 long-term
capital gain is recharacterized as short-term capital gain under paragraph (a) of this
section. The API remains an API in the hands of the Section 1061(d) Related Person
under §1.1061-2(a)(1)(i).
*****
§1.1061-6 [Amended]
Par. 6. Section 1.1061-6 is amended by removing the language “capital gain
excluding” in the first sentence of paragraph (c)(1)(i) and adding the language “capital
gain, excluding” in its place.
§ 1.1223–3 [Amended]
Par. 7. Section 1.1223-3 is amended by removing the language “June 30, 2020”
in the third sentence of paragraph (f)(10) and adding the language “June 1, 2020” in its
place.

Oluwafunmilayo A. Taylor,
Section Chief,
Publications and Regulations Section,
Associate Chief Counsel,
(Procedure and Administration).
[FR Doc. 2024-12374 Filed: 6/13/2024 8:45 am; Publication Date: 6/14/2024]