Partnerships can no longer use related-party loans to avoid tax liability

The Treasury Department has tightened rules for how partnerships account for certain debts. This means partners can no longer use loans from related parties to reduce their personal tax obligations.

For years, some partners in a business could use loans from family members or other related entities to claim a larger share of the partnership's losses, reducing their taxable income. These new rules close that loophole. It means the IRS expects partners to treat these loans as real debt, not just a way to shift tax burdens.