Public comments are open until 18 September 2025.
The US Department of the Treasury and the Internal Revenue Service (IRS) have proposed regulations modifying information reporting obligations with respect to sales or exchanges of certain interests in partnerships owning inventory or unrealised receivables. The proposed regulations affect partnerships as outlined in Internal Revenue Code (IRC) Section 751(a) (RIN 1545-BR54).
The proposal addresses stakeholders’ concerns that many partnerships may be unable to provide the required information by the current deadline.
Under the proposed regulations, Section 741 of the Code provides that gain or loss recognised 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, Report of a Sale or Exchange of Certain Partnership Interests, 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, U.S. Return of Partnership Income, for the partnership’s taxable year that includes the last day of the calendar year in which the section 751(a) exchange took place.
Under the proposed changes, the Treasury and IRS will revise the Form 8308 instructions to clarify that only the information in Parts I, II, and III must be provided by the deadlines set under IRC section 6050K.
The IRS proposes removing Part IV reporting from Form 8308 and amending section 1.6050K-1(c)(1), both effective after final regulations are published, with partnerships allowed to rely on the rules for section 751(a) exchanges starting 1 January 2025.
The IRS will accept public comments on the proposed regulations until 18 September 2025.
