Tax Insight

Partnership related-party basis adjustment rules withdrawn

Insight
5 minute read
March 09, 2026

What happened?

Treasury and the IRS issued proposed amendments to the regulations on March 5, 2026 that would withdraw the related-party basis adjustment regulations (RPBA regulations) that were issued on January 14, 2025. These proposed amendments are consistent with Notice 2025-23 that was issued April 17, 2025 and announced Treasury’s intent to withdraw the RPBA regulations. The proposed amendments would be effective when published as final and will provide that participants and material advisors can treat the withdrawal as effective on January 14, 2025, the effective date of the RPBA regulations.

Why is it relevant?

The withdrawal of the RPBA regulations eliminates the need for taxpayers and their advisors to disclose covered transactions--many of which were common and routine--as Transactions of Interest. Because the RPBA regulations were finalized with retroactive effect back to 2019 for most taxpayers, the elimination of the disclosure obligation could significantly reduce administrative burden for many taxpayers. The preamble to the 2026 proposed regulations provides that the “Treasury Department and the IRS intend that the Treasury decision adopting the Forthcoming Final Regulations will provide that participants and material advisors may treat the removal of the [RPBA regulations] as occurring on January 14, 2025, which is the applicability date of the [RPBA regulations]. Thus, participants and material advisors will be able to treat the [RPBA regulations] as never having taken effect.” Thus, the issuance of these 2026 proposed regulations does not substantively affect the application of these rules as in place after the publication of Notice 2025-23, but represents a necessary procedural step to the eventual removal of the RPBA regulations.

Actions to consider

The proposed withdrawal represents welcome relief from a significant burden for many taxpayers. However, Treasury and the IRS could continue to focus audit activity on partnership transactions in which basis is increased without commensurate gain recognition. Partnerships and their partners should consider the conclusions of Rev. Rul. 2024-14 (which asserted that certain of these transactions lack economic substance and which remains in effect) when undertaking future transactions.

For more information, please see the following publications:

PwC Tax Insight: Treasury and IRS announce intent to withdraw related-party basis adjustment rules (April 18, 2025)

PwC Tax Insight: Guidance designated related-party basis adjustment transactions as transactions of interest (March 18, 2025)