WASHINGTON, D.C. — The Department of the Treasury and the Internal Revenue Service (IRS) have issued final regulations classifying certain partnership related-party basis adjustment transactions as transactions of interest (TOIs). These transactions, flagged for their potential to avert taxes through inflated property basis increases, will now be subject to stringent reporting requirements.
The finalized regulations address recommendations received during the public comment period, incorporating key adjustments to reduce taxpayer burden. Notably, the dollar threshold for basis increases in TOIs has risen significantly—from the initially proposed $5 million to $25 million for tax years before 2025, and to $10 million for subsequent years.
Retroactive reporting has also been scaled back, limiting the requirement to a six-year lookback period. This measure applies only to open tax years within the 72 months prior to the start of the taxpayer’s most recent tax year before the regulations’ publication. The $25 million threshold applies within this window as well.
Taxpayers and material advisors have been granted an additional 90 days to submit disclosure statements for TOIs in years for which returns were already filed. Publicly traded partnerships, typically owned by a broad range of unrelated investors, are largely exempted from reporting requirements under the new rules.
Originally proposed in June 2024, the regulations target practices where related parties increase property or partnership interest bases without corresponding tax liabilities. These transactions often involve tax-free distributions or transfers, potentially enabling significant reductions in taxable income through mechanisms such as depreciation or in adjusted gains or losses.
With the updated reporting framework, the Treasury and IRS aim to strengthen transparency and compliance while addressing taxpayer concerns about administrative burdens.
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