WASHINGTON, DC—Last month the US Treasury Department and the Internal Revenue Service quietly published a notice in the Federal Register that could upend commercial real estate partnership structures.

Briefly, the government is prosing a rule that would ban companies from converting the management fees they receive from their investors -- fees that would normally be taxed as ordinary income -- into capital contributions invested in their funds. Read our previous coverage on this development here.

After the publication, the agency went dark, at least as far as this proposal is concerned -- as did the industry as a matter of fact, after a few days.

Not that the former is unusual, Sam L. Merrill, a partner at the Dallas office of Thompson & Knight LLP, tells GlobeSt.com. The government process for rule making in general can be a long and winding one, as we shall see in a moment. As for the lack of industry comment on the issue, well that will probably come.  Now, though, it appears companies are hunkering down. As one executive that tracks this issue told me, "people seem to be trying to internally determine what the proposals really mean. That is certainly what we are doing right now."

GlobeSt.com spoke with Merrill to find out the answer to four questions: "What happens next?", "how long will whatever will happen next actually take?", "what do you think the proposals mean?" and "what should commercial real estate partnerships do in the meantime?"

This is what he had to say.

About what happens next: For starters, proposed regulations do not have full force and legal effect unless and until they are adopted as final regulations. Prior to adoption as final regulations, proposed regulations may be withdrawn or modified at any time. It is possible the proposals could go into effect without a public comment period.

But generally speaking, when the Treasury and the IRS issue proposed regulations, they invite public comments on the proposed regulations. In addition, a public hearing may be scheduled to provide additional feedback to the Treasury and the IRS.

After that, the Treasury and the IRS may finalize the regulations as proposed, finalize the regulations with various modifications based on the comments from the comment period or public hearings, withdraw the proposed regulations, or simply leave the proposed regulations on record without taking further action.

About how long this process can take: Final regulations may be issued very quickly, or it may take years or even decades before any further action is taken.

What I think this proposal will mean for the commercial real estate industry: Although the regulations could have a broader application, the primary target of the proposed regulations are 'fee waiver' provisions. These are provisions commonly found in limited partnership or LLC agreements that permit a service provider to forego the receipt of a fee for services in exchange for a partnership interest.

The proposed regulations take the position that if a service provider wants to waive a fee in exchange for the issuance of a partnership interest, then the service provider must take a legitimate business risk that the foregone income will never materialize. If there are too many protections that ensure that the service provider ultimately will receive an amount equal to the foregone fee, then the proposed regulations view the waiver as ineffective and characterize the service provider as having received the fee income.

What I think CRE companies should do in the meantime: Sponsors of real estate funds should review the fee waiver provisions in their governing documents -- many fee waiver provisions will provide for adequate risk and will therefore comply with the proposed regulations

Other fee waiver provisions, however, will not comply with the proposed regulations. Sponsors of real estate funds that have non-compliant fee waiver provisions should consider modifying their governing documents to ensure that their fee waiver elections will be respected by the IRS.

And of course, companies should consider the impact of the proposed regulations when making future decisions regarding whether to waive a fee in exchange for a partnership interest.