Treasury and IRS Reverse Position on Related-Party Basis-Shifting Transactions
On April 17th, the IRS issued Notice 2025-23 announcing the intent of the IRS and Treasury to remove basis-shifting transactions as transactions of interest that require reporting under Reg. §1.6011-18 and not to issue proposed related-party basis adjustment regulations, as had been announced in Notice 2024-54. In line with Notice 2025-23, taxpayers who participated in related-party basis-shifting transactions identified in Reg. §1.6011-18 are no longer required to file Form 8886,
Reportable Transaction Disclosure Statement, and material advisors involved in such transactions no longer are required to file Form 8918,
Material Advisor Disclosure Statement, or maintain a list of advisees pursuant to §6112 with respect to the transaction.
At last year’s
Tax Planning Forum, we discussed in detail the broad reach of the IRS and Treasury’s guidance relating to related-party basis-shifting transactions in Rev. Rul. 2024-14, Prop. Reg. 1.6011-18 (finalized effective January 14, 2025) and Notice 2024-54. The broad reach of the Treasury’s and IRS’s now withdrawn position included transactions that occur in the normal ordinary course of business, in addition to transactions that may be abusive. For example, a family business break-up transaction caused by a legitimate family business disagreement may involve a partnership that distributes high-basis land (nondepreciable property) to a departing partner who, pursuant to §732(b), attaches low outside basis in the partner’s partnership interest to the distributed land, and consequently, the partnership, pursuant to §734(b), steps-up the basis of depreciable property inside the partnership.
We will discuss the impact and any further developments relating to Notice 2025-23 during live Q&A at our upcoming
Fundamentals of Flow-Through spring programs, as well as this fall at the
Tax Planning Forum and
Fundamentals of Flowh-Through programs.