Returns Relating to Sales or Exchanges of Certain Partnership Interests

DEPARTMENT OF THE TREASURY <SUBAGY>Internal Revenue Service</SUBAGY> <CFR>26 CFR Part 1</CFR> <DEPDOC>[REG-108822-25]</DEPDOC> <RIN>RIN 1545-BR54</RIN> <SUBJECT>Returns Relating to Sales or Exchanges of Certain Partnership Interests</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Internal Revenue Service (IRS), Treasury. <HD SOURCE="HED">ACTION:</HD> Notice of proposed rulemaking. <SUM> <HD SOURCE="HED">SUMMARY:</HD> This document contains proposed regulations modifying information reporting obligations with respect to sales or exchanges of certain interests in partnerships owning inventory or unrealized receivables. The proposed regulations affect partnerships. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> Written or electronic comments and requests for a public hearing must be received by September 18, 2025. </EFFDATE> <HD SOURCE="HED">ADDRESSES:</HD> Commenters are strongly encouraged to submit public comments and requests for a public hearing electronically via the Federal eRulemaking Portal at <E T="03">https://www.regulations.gov</E> (indicate IRS and REG-108822-25) by following the online instructions for submitting comments and requests for a public hearing. Requests for a public hearing must be submitted as prescribed in the “Comments and Requests for a Public Hearing” section. Once submitted to the Federal eRulemaking Portal, comments cannot be edited or withdrawn. The Department of the Treasury (Treasury Department) and the IRS will publish for public availability any comment submitted to the IRS's public docket. Send paper submissions to: CC:PA:01:PR (REG-108822-25), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044. <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> Concerning the proposed regulations, Jeremy Brown, (202) 317-5279 (not a toll-free number); concerning the submission of comments, contact the Publications and Regulations Section of the Office of Associate Chief Counsel (Procedure and Administration) by email at <E T="03">publichearings@irs.gov</E> (preferred) or by telephone at (202) 317-6901 (not a toll-free number). </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">Authority</HD> This document contains proposed amendments to the Income Tax Regulations (26 CFR part 1) under section 6050K of the Internal Revenue Code (Code). Section 6050K(a) provides that, except as provided in regulations prescribed by the Secretary of the Treasury or the Secretary's delegate (Secretary), a partnership is required to file a return if there is an exchange described in section 751(a) of the Code of any interest in the partnership during any calendar year. Section 6050K(a) also contains express delegations of authority for the Secretary to promulgate regulations prescribing the information required to be disclosed on such partnership returns, the manner in which such returns are made, and the due date of such returns. Section 6031(a) of the Code provides an express grant of authority for the Secretary to prescribe in forms or regulations partnership reporting information required “for the purpose of carrying out the provisions of subtitle A.” Section 7805(a) of the Code authorizes the Secretary to “prescribe all needful rules and regulations for the enforcement of [the Code], including all rules and regulations as may be necessary by reason of any alteration of law in relation to internal revenue.” <HD SOURCE="HD1">Background</HD> Section 741 of the Code provides that gain or loss recognized by a transferor partner upon sale or exchange of a partnership interest is considered as gain or loss from the sale or exchange of a capital asset, except as provided in section 751. Section 751(a) provides that the amount of any money, or the fair market value of any property, received by a transferor partner in exchange for all or a part of the transferor partner's interest in the partnership attributable to (1) unrealized receivables of the partnership, or (2) inventory items of the partnership, will be considered as an amount realized from the sale or exchange of property other than a capital asset. Section 1.6050K-1(a)(4)(i) refers to a sale or exchange to which section 751(a) applies as a “section 751(a) exchange.” Section 6050K(a) requires a partnership to file a return if there is a section 751(a) exchange of any interest in the partnership during any calendar year. Section 6050K(a) further provides that the return must state the name and address of the transferee and transferor in the section 751(a) exchange and such other information as the Secretary may by regulations prescribe. Section 1.6050K-1(a)(1) generally requires a partnership to make a separate return using Form 8308, <E T="03">Report of a Sale or Exchange of Certain Partnership Interests,</E> with respect to each section 751(a) exchange. Section 1.6050K-1(b) requires the Form 8308 to include the following information: (1) the names, addresses, and taxpayer identification numbers of the transferee and transferor in the exchange and of the partnership filing the return; (2) the date of the exchange; and (3) such other information as may be required by Form 8308 or its instructions. Section 1.6050K-1(f)(1) requires a partnership to file Form 8308 as an attachment to its Form 1065, <E T="03">U.S. Return of Partnership Income,</E> for the partnership's taxable year that includes the last day of the calendar year in which the section 751(a) exchange took place. Section 6050K(b) requires a partnership to provide certain information to transferors and transferees that are parties to a section 751(a) exchange on or before January 31 of the year following the calendar year of the section 751(a) exchange. Among other things, the information provided to each transferor and transferee must include the information required to be shown on the partnership's return under section 6050K(a) with respect to such person. Section 6050K(c)(1) provides that the transferor of the partnership interest must notify the partnership of any exchange described in section 6050K(a). Under section 6050K(c)(2), a partnership is not required to make a return under section 6050K with respect to any exchange until the partnership is notified of such exchange. Section 1.6050K-1(c)(1) clarifies that each partnership that is required to file a Form 8308 must furnish a statement to the transferor and transferee by the later of (1) January 31 of the year following the calendar year in which the section 751(a) exchange occurs, or (2) 30 days after the partnership receives notice of the exchange as specified under section 6050K(c) and § 1.6050K-1(e). A partnership generally must use a copy of the completed Form 8308 as the required statement. On November 30, 2020, the Treasury Department and the IRS published in the <E T="04">Federal Register</E> final regulations (TD 9926, 85 FR 76910) that added § 1.6050K-1(c)(2) to require a partnership to furnish to a transferor partner the information necessary for the transferor to make the transferor partner's required statement in § 1.751-1(a)(3). Section 1.751-1(a)(3) requires a transferor partner in a section 751(a) exchange to submit with the transferor partner's income tax return for the taxable year in which the sale or exchange occurs a statement separately stating the date of the sale or exchange, the amount of any gain or loss attributable to section 751 property, and the amount of any gain or loss attributable to capital gain or loss on the sale of the partnership interest. After the promulgation of § 1.6050K-1(c)(2), the IRS revised Form 8308. Part IV of the revised Form 8308 requires a partnership to report, among other items, the partnership's gain or loss from a deemed sale under section 751 and the transferor partner's share of such amount. As a result of the changes to Part IV of Form 8308, a partnership's obligation to report the gain or loss attributable to a section 751(a) exchange to a transferor is effectively accelerated to January 31 of the year following the section 751(a) exchange, even though § 1.751-1(a)(3) generally does not require the transferor partner to report such information to the IRS until the transferor partner files the partner's income tax return for the taxable year in which the sale or exchange occurs, the due date of which can be several months after January 31. Following the revisions to Form 8308, the Treasury Department and the IRS received comments from stakeholders that many partnerships are unable to furnish the information required in Part IV of the Form 8308 to transferors and transferees by the January 31 due date because, in many cases, partnerships do not have all the information required by Part IV of the Form 8308 by January 31 of the year following the calendar year in which the section 751(a) exchange occurred. On January 11, 2024, the IRS published Notice 2024-19, 2024-5 I.R.B. 627, which provided limited relief from penalties under section 6722 of the Code for partnerships that failed to furnish a completed Part IV of Form 8308 by January 31, 2024, for section 751(a) exchanges during calendar year 2023. Penalty relief in Notice 2024-19 was contingent on the partnership (1) timely and correctly furnishing to the transferor and transferee a copy of Parts I, II, and III of Form 8308, or a statement that includes the same information, by the later of January 31, 2024, or 30 days after the partnership is notified of the section 751(a) exchange, and (2) furnishing to the transferor and transferee a copy of the complete Form 8308, including Part IV, or a statement that includes the same information and any additional information required under § 1.6050K-1(c), by the later of (a) the due date of the partnership's Form 1065 (including extensions), or (b) 30 days after the partnership is notified of the secti ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 23k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━