IR-2025-06, Jan. 10, 2025 WASHINGTON — The Department of the Treasury and the Internal Revenue Service today issued final regulations identifying certain partnership related-party “basis shifting” transactions as transactions of interest – TOIs – subject to the rules for reportable transactions. Comments on the proposed rules reflected in the final regulations Treasury and IRS received comments on the proposed regulations stating that the final regulations should avoid unnecessary burdens for small, family-run businesses, limit retroactive reporting, provide more time for reporting and differentiate publicly traded partnerships, among other suggested changes. The final regulations address these comments and include certain changes reflecting the comments. Increased dollar threshold for basis increase in a TOI Treasury and IRS increased the threshold amount for a basis increase in a TOI from $5 million to $25 million for tax years before 2025 and $10 million for tax years thereafter. Limited retroactive reporting for open tax years To address comments on creating an unnecessary burden for taxpayers subject to the disclosure rules of the final regulations, Treasury and IRS limited reporting for open tax years to those that fall within a six-year lookback window. The six-year lookback window is the seventy-two-month period before the first month of a taxpayer’s most recent tax year that began before the publication of the final regulations. In addition, the threshold amount for a basis increase in a TOI during the six-year lookback period is $25 million. Additional time for reporting The final regulations give taxpayers and material advisors more time to file disclosure statements. Taxpayers have an additional 90 days from the final regulation’s publication date to file disclosure statements for TOIs in open tax years for which a tax return has already been filed and that fall within the six-year lookback window. Material advisors have an additional 90 days to file their disclosure statements for tax statements made before the final regulations. Publicly traded partnerships Because PTPs are typically owned by a large number of unrelated owners, the final regulations exclude many owners of PTPs from the disclosure rules. Final regulations In June 2024, the Department of the Treasury and the IRS issued proposed regulations that identified certain partnership basis adjustment transactions by related parties as TOIs. Today, Treasury and IRS issued regulations finalizing the proposed regulations, with several important changes, including those described above. The final regulations identify certain partnership related-party basis adjustment transactions, and substantially similar transactions, as TOIs. They apply to related partners and partnerships that participated in the identified transactions through distributions of partnership property or the transfer of an interest in the partnership by a related partner to a related transferee. The affected taxpayers and their material advisors are subject to the disclosure requirements for reportable transactions. The identified transactions generally result from either a tax-free distribution of partnership property to a partner that is related to one or more partners of the partnership, or the tax-free transfer of a partnership interest by a related partner to a related transferee. The tax-free distribution or transfer generates an increase to the basis of the distributed property or partnership property of $10 million or more ($25 million or more in the case of a TOI undertaken in a tax year before 2025) under the rules of Internal Revenue Code sections 732(b) or (d), 734(b) or 743(b) but for which no corresponding tax is paid. The basis increase to the distributed or partnership property allows the related parties to significantly decrease taxable income through increased cost recovery allowances (such as depreciation deductions) or decrease taxable gain (or increase taxable loss) on the disposition of the property subject to the basis increase.
