Reporting requirements imposed on both taxpayers and material advisors
The U.S. Treasury Department and IRS in January 2025 released final regulations requiring reporting of partnership transactions that have the effect of shifting basis in a manner perceived by the government as abusive. The regulations are extremely broad, requiring both taxpayers and material advisors to report certain transactions of interest going forward and looking back to the prior six years. Importantly, the transactions of interest generally represent common business transactions forcing taxpayers and advisors to find, evaluate, and report many transactions without regard to the taxpayer’s intent or business purpose.
Generally, the new rules target both an exchange of a partnership interest between related parties and any distribution of property from a partnership with related partners if either results in a shifting of tax basis under the provisions of subchapter K. Taxpayers are also required to report basis recovery in all affected years resulting from such transactions. Taxpayers must identify and report transactions of interest occurring in the prior six years by the July 14, 2025 deadline for tax years in which returns have already been filed. Additionally, taxpayers will have reporting obligations on their tax year 2024 filings for transactions occurring in 2024 and any basis recovery impacting their 2024 returns from transactions occurring in the past six years.
Read a February 2025 report prepared by KPMG LLP that highlights the significant and complex reporting requirements imposed on both taxpayers and material advisors.