The Treasury Department and the IRS has issued three guidance items addressing basis-shifting transactions involving partnerships and related parties that could significantly limit the flexibility afforded to related-party partnerships.
Proposed regulations (the Reportable Transaction Proposed Regulations) would, if finalized, treat certain partnership related-party basis adjustment transactions (Covered Transactions or Related-Party Basis Adjustment Transactions) as transactions of interest that would be required to be disclosed to the IRS by participants and material advisors.
Notice 2024-54 (the Notice) announces that Treasury and the IRS plan to publish proposed regulations with respect to Related-Party Basis Adjustment Transactions (the Proposed Related-Party Basis Adjustment Regulations) as well as proposed regulations with respect to the taxable income and tax liability of a consolidated group whose members own interests in a partnership (the Proposed Consolidated Return Regulations). Significantly, the Notice indicates that the Proposed Related-Party Basis Adjustment Regulations would deny cost recovery deductions (or reductions in disposition gains) in future periods, even if the transfer giving rise to the basis adjustment occurred prior to 2024.
Finally, Rev. Rul. 2024-14 holds that the economic substance doctrine would apply to disallow tax benefits in three scenarios involving a related-party partnership.
READ MORE