April 24, 2025

Executive Summary / Abstract

On Thursday, April 18, 2025, the IRS issued Notice 2025-23. In this Notice, the IRS withdrew Notice 2024-54 (which outlined proposed regulations for certain partnership basis shifting transactions among related parties) and stated that it intends to issue proposed regulations removing the Related Party Basis Shifting Transaction of Interest reporting regulations (Treas. Reg. § 1.6011-18) (the “TOI Reporting Regulations”).

Impacted Clients

Notice 2025-23 will impact clients that have received (or will receive) basis adjustments to partnership property under IRC § 732, 734 or 743 where related persons are involved in the transactions giving rise to those basis adjustments.

When Does This Advice Apply?

Per Notice 2025-23, the proposed regulations are intended to have an applicability date that corresponds to the date the Notice is issued to the public, with elective retroactive application to January 14, 2025 (the date of the TOI Reporting Regulations being withdrawn). Further, the IRS will waive any participant and material advisor penalties for failure to report pursuant to the final TOI Reporting Regulations or the Section 6111 material advisor reporting provisions for partnership related party basis shifting transactions.

Overview and Observations

In late 2024, the IRS issued Notice 2024-54, outlining the contents of proposed regulations intended to combat perceived abuses of the partnership basis adjustment rules of Sections 732, 734 and 743 attributable to partnership transactions involving related partners. In connection with Notice 2024-54, the IRS also issued proposed regulations identifying these transactions as “transactions of interest” subject to reporting under the Section 6011 reportable transaction disclosure provisions and, by implication, the Section 6111 material advisor disclosure provisions. Concurrent with Notice 2024-54 and the proposed transaction of interest regulations, the IRS also issued Revenue Ruling 2024-14, clarifying that the IRS would challenge and disallow tax benefits from partnership related person basis adjustments, under the codified economic substance doctrine in Section 7701(o). The transaction of interest regulations were finalized in January 2025, and would have required reporting of specified partnership basis shifting transactions occurring within a five-year lookback period. Subsequent guidance permitted material advisors to defer reporting such transactions until June 30, 2025.

In Notice 2025-23,

• The IRS withdrew Notice 2024-54 and stated that it will propose regulations to withdraw the final TOI Reporting Regulations.
• The IRS also stated that it will:
  • Waive the reportable transaction participant penalties under Section 6707A for any failure to file a Form 8886, Reportable Transaction Disclosure Statement, that is otherwise required by the final TOI Reporting Regulations, as well as;
  • Waive the material advisor penalty under Section 6707(a) and Section 6708 on material advisors that fail to file a Form 8919, Material Advisor Disclosure Statement, or fail to maintain the list of participants otherwise required under Section 6112, with respect to a transaction otherwise reportable under the final TOI Reporting Regulations.

The proposed regulations withdrawing the final TOI Reporting Regulations will have a proposed effective date of the date Notice 2024-54 is published, with the ability to rely on the proposed regulations back to January 12, 2025, which is the date that the TOI Reporting Regulations were finalized.

However, the IRS has not yet revoked Revenue Ruling 2024-14, although in light of the withdrawal of Notice 2024-54 and the proposed withdrawal of the final TOI Reporting Regulations, the position set forth in the Revenue Ruling would seem to no longer be the IRS’s position on partnership related party basis adjustments.

Furthermore, the status of Form 7217, Partner’s Report of Property Distributed by a Partnership, which was perceived as a complement to Notice 2024-54 and the related guidance, is also unclear. For the moment, Form 7217 should continue to be filed, pending further developments.

What it means for clients: Clients that may have otherwise been treated as participants in a partnership basis shifting transaction under the final TOI Reporting Regulations (either prospectively or during the five-year lookback period specified in the final TOI Reporting Regulations) will not need to file Forms 8886 with respect to such transactions.

What it means for Citrin Cooperman: Citrin Cooperman will not need to file Forms 8918 with respect to a partnership basis shifting transaction identified in the final TOI Reporting Regulations, either for prospective transactions or transactions that occurred during the five-year lookback period specified in the final TOI Reporting Regulations.

However, the IRS has not revoked Revenue Ruling 2024-14, although in light of the withdrawal of Notice 2024-54 and the proposed withdrawal of the final TOI Reporting Regulations, the position set forth in the Revenue Ruling would seem to no longer be the IRS’s position on partnership related party basis adjustments.  NTO will monitor the situation for future developments on the status of the Revenue Ruling. For more information, please contact Michael Mishik or another member of Citrin Cooperman’s Federal National Tax Office.