Par. 4. Section 1.707-1 is amended by: 1. Removing the language “partner” in paragraph (b)(1)(i) and adding the language “person” in its place; 2. Removing the language “the provisions of subdivision (i) of this subparagraph,” in paragraph (b)(1)(ii) and adding the language “paragraph (b)(1)(i) of this section,” in its place; 3. Adding new paragraph (b)(1)(iii); 4. Removing the language “partner” in paragraph (b)(2) and adding the language “person” in its place; 5. Removing the language “80 percent” in the first and second sentences of paragraph (b)(2) and adding the language “50 percent” in its place; and 6. Revising paragraph (b)(3). The additions and revision read as follows:
* * * * *
(b) * * *
(1) * * *
(iii) For purposes of matching deductions and income in the case of expenses and interest under section 267(a)(2), two partnerships in which the same persons own, directly or indirectly, more than 50 percent of the capital interests or profits interests in each partnership will be treated as persons specified in section 267(b).
* * * * *
(3) Ownership of a capital or profits interest. For the purpose of applying section 707(b), the rules for constructive ownership of stock provided in section 267(c)(1), (2), (4), and (5) apply in determining the extent to which a capital interest or profits interest in a partnership is owned, directly or indirectly, by any person, including a person who does not own a partnership interest prior to application of 267(c). For example, where trust T is a partner in the partnership ABT, and AW, A's wife, is the sole beneficiary of the trust, the ownership of a capital and profits interest in the partnership by T will be attributed to AW both for the purpose of further attributing the ownership of such interest to A and for determining whether AW is a constructive owner of an interest in the partnership. See section 267(c) (1), (2), and (5). Accordingly, if A, B, and T are equal partners in ABT, because AW is treated as constructively owning the one-third capital and profits interest in ABT owned by T and AW's ownership is attributed to A, A will be considered as owning a more than 50 percent capital and profits interest in ABT, and a loss sustained by A on a sale or exchange of property with ABT will be disallowed by section 707(b)(1)(A). Similarly, because AW is treated as constructively owning the one-third capital and profits interest in ABT owned by T and is attributed the ownership of A's capital and profits interest in ABT, AW will be considered as owning a more than 50 percent capital and profits interest in ABT and a loss sustained by AW on a sale or exchange of property with ABT would also be disallowed by section 707(b)(1)(A).
* * * * *