Partners have long enjoyed the ability to influence a partnership’s allocation of its liabilities by making a “bottom guarantee” of partnership debt. The term “bottom guarantee” or “bottom dollar guarantee” is used to refer to a guarantee by a partner of the repayment of the “last dollars” of a partnership liability. For example, suppose that a partnership has a property with a value of $10 million subject to $6 million of mortgage debt. A $3 million bottom guarantee made by a partner of this debt would mean that the partner would not need to make any payments unless the value of the property declines from $10 million to less than $3 million.
We have known that the end was coming for bottom guarantees since the issuance of proposed regulations by the Treasury Department in 2014. That expectation has now become a reality, as temporary regulations regarding bottom guarantees were issued earlier this month.
