Partnership Basis-Shifting Loopholes: IRS Final Regs

by Prof. Robert Bloink and Prof. William H. Byrnes

The IRS and Treasury have now finalized regulations that require partnerships to disclose information about certain transactions involving distributions and transfers of partnership interests and assets when those transactions could be abusive. The regulations apply to complicated basis-shifting transactions through which taxpayers shift the basis of assets between closely related partners or entities to reduce taxable gain or increase depreciation deductions without any real cost or economic value to the partnership. While the regulations largely track guidance issued in 2024, they also contain notable changes. Importantly, the final regulations may apply retroactively, so it’s critical for small business partners to evaluate both current and past transactions to avoid running afoul of the new reporting rules.

Background