Guidance designating related-party basis shifting transactions as transactions of interest finalized

January 10, 2025

In brief

What happened?

The Treasury Department and the IRS today issued final regulations (the Related-Party Basis Adjustment Disclosure Regulations) identifying certain partnership related-party basis transactions (Covered Transactions) as transactions of interest, which must be disclosed to the IRS by participants and material advisors. The final regulations are expected to be published in the Federal Register and become effective on January 14, 2025.

Why is it relevant?

The Related-Party Basis Adjustment Disclosure Regulations require participants and material advisors to disclose many common partnership transactions that result in positive basis adjustments, including current and liquidating distributions of property by a partnership with related partners and non-recognition transfers of a partnership interest to a related partner. The Related-Party Basis Adjustment Disclosure Regulations provide specific exclusions for certain transactions that would otherwise be Covered Transactions, including most transfers of interests in publicly-traded partnerships; transactions in which a corresponding step-down in basis is borne by an unrelated party; and subsequent transactions requiring recomputation of a basis adjustment to the extent the new basis adjustment does not exceed the prior adjustment.

Subject to a materiality threshold of $10 million for current transactions and $25 million for later-identified transactions, disclosure is required for current Covered Transactions as well as for any completed Covered Transactions that occurred in the six years prior to the start of the taxpayer’s most recent taxable year.

Failing to disclose a Covered Transaction could result in penalties for both participants and material advisors.

Actions to consider

Taxpayers should consult with their tax advisors regarding whether current transactions or transactions completed during the lookback period are Covered Transactions that require disclosure under the Related-Party Basis Adjustment Disclosure Regulations.