2958 Federal Register / Vol. 90, No. 8 / Tuesday, January 14, 2025 / Rules and Regulations 

manufactured or unmanufactured, 

incorporated directly into a 

manufactured product or, where 

applicable, an iron or steel product. 

(ii) Excluded materials means section 

70917(c) materials as defined in 2 CFR 

184.3. 

(iii) Iron or steel products means 

articles, materials, or supplies that 

consist wholly or predominantly of iron 

or steel or a combination of both. 

(iv) Manufactured products means 

articles, materials, or supplies that have 

been processed into a specific form and 

shape, or combined with other articles, 

materials, or supplies to create a 

product with different properties than 

the individual articles, materials, or 

supplies. If an item is classified as an 

iron or steel product, an excluded 

material, or other product category as 

specified by law or in 2 CFR part 184, 

then it is not a manufactured product. 

However, an article, material, or supply 

classified as a manufactured product 

may include components that are iron 

or steel products, excluded materials, or 

other product categories as specified by 

law or in 2 CFR part 184. Mixtures of 

excluded materials delivered to a work 

site without final form for incorporation 

into a project are not a manufactured 

product. 

(v) Manufacturer, in the case of 

manufactured products, means the 

entity that performs the final 

manufacturing process that produces a 

manufactured product. 

(vi) Predominantly of iron or steel or 

a combination of both means that the 

cost of the iron and steel content 

exceeds 50 percent of the total cost of 

all its components. The cost of iron and 

steel is the cost of the iron or steel mill 

products (such as bar, billet, slab, wire, 

plate, or sheet), castings, or forgings 

utilized in the manufacture of the 

product and a good faith estimate of the 

cost of iron or steel components. 

(vii) Produced in the United States, in 

the case of manufactured products, 

means: 

(A) For projects obligated on or after 

October 1, 2025, the product was 

manufactured in the United States; and 

(B) For projects obligated on or after 

October 1, 2026, the product was 

manufactured in the United States and 

the cost of the components of the 

manufactured product that are mined, 

produced, or manufactured in the 

United States is greater than 55 percent 

of the total cost of all components of the 

manufactured product. 

(2) An article, material, or supply 

shall only be classified as an iron or 

steel product, a manufactured product, 

or other products as specified by law or 

in 2 CFR part 184. An iron or steel 

product must meet the requirements of 

paragraph (b) of this section. Except as 

otherwise provided in this paragraph 

(c), an article, material, or supply shall 

not be considered to fall into multiple 

categories. In some cases, an article, 

material, or supply may not fall under 

any of the above-listed categories. The 

classification of an article, material, or 

supply as falling into one of the 

categories listed in this paragraph (c) 

must be made based on its status at the 

time it is brought to the work site for 

incorporation into an infrastructure 

project. In general, the work site is the 

location of the infrastructure project at 

which the iron or steel product or 

manufactured product will be 

incorporated. 

(i) With respect to precast concrete 

products that are classified as 

manufactured products, components of 

precast concrete products that consist 

wholly or predominantly of iron or steel 

or a combination of both shall meet the 

requirements of paragraph (b) of this 

section. The cost of such components 

shall be included in the applicable 

calculation for purposes of determining 

whether the precast concrete product is 

produced in the United States. 

(ii) With respect to intelligent 

transportation systems and other 

electronic hardware systems that are 

installed in the highway right of way or 

other real property and classified as 

manufactured products, the cabinets or 

other enclosures of such systems that 

consist wholly or predominantly of iron 

or steel or a combination of both shall 

meet the requirements of paragraph (b) 

of this section. The cost of cabinets or 

other enclosures shall be included in 

the applicable calculation for purposes 

of determining whether systems referred 

to in the preceding sentence are 

produced in the United States. 

(3) In determining whether the cost of 

components for manufactured products 

is greater than 55 percent of the total 

cost of all components, recipients shall 

determine the cost as follows: 

(i) For components purchased by the 

manufacturer, the acquisition cost, 

including transportation costs to the 

place of incorporation into the 

manufactured product (whether or not 

such costs are paid to a domestic firm), 

and any applicable duty (whether or not 

a duty-free entry certificate is issued); or 

(ii) For components manufactured by 

the manufacturer, all costs associated 

with the manufacture of the component, 

including transportation costs as 

described in paragraph (c)(3)(i) of this 

section, plus allocable overhead costs, 

but excluding profit. Cost of 

components does not include any costs 

associated with the manufacture of the 

manufactured product. 

(4) The provisions of this paragraph 

(c) are separate and severable from one 

another and from the other provisions of 

this section. If any provision is stayed 

or determined to be invalid, the 

remaining provisions shall continue in 

effect. 

* * * * * 

[FR Doc. 2024–31350 Filed 1–13–25; 8:45 am] 

BILLING CODE 4910–22–P 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Part 1 

[TD 10028] 

RIN 1545–BR07 

Certain Partnership Related-Party 

Basis Adjustment Transactions as 

Transactions of Interest 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Final rule. 

SUMMARY: This document contains final 

regulations that identify certain 

partnership related-party basis 

adjustment transactions and 

substantially similar transactions as 

transactions of interest, a type of 

reportable transaction. Material advisors 

and certain participants in these 

transactions are required to file 

disclosures with the IRS and are subject 

to penalties for failure to disclose. The 

final regulations affect participants in 

these transactions as well as material 

advisors. 

DATES: 

Effective date: These regulations are 

effective on January 14, 2025. 

Applicability date: For the date of 

applicability, see § 1.6011–18(h) and (i). 

FOR FURTHER INFORMATION CONTACT: 

Concerning these final regulations, 

contact Elizabeth Zanet of the Office of 

Associate Chief Counsel (Passthroughs 

and Special Industries), (202) 317–6007 

(not a toll-free number). 

SUPPLEMENTARY INFORMATION: 

Authority 

This document amends the Income 

Tax Regulations (26 CFR part 1) by 

adding final regulations under section 

6011 of the Internal Revenue Code 

(Code). The document adds § 1.6011–18 

to identify certain partnership relatedparty basis adjustment transactions and 

substantially similar transactions as 

transactions of interest, a type of 


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Federal Register / Vol. 90, No. 8 / Tuesday, January 14, 2025 / Rules and Regulations 2959 

reportable transaction (final 

regulations). These regulations are 

issued pursuant to the authority 

conferred on the Secretary of the 

Treasury or her delegate (Secretary) 

under the following provisions of the 

Code. 

Section 6001 of the Code provides an 

express delegation of authority to the 

Secretary of the Treasury or her delegate 

(Secretary), requiring every taxpayer to 

keep the records, render the statements, 

make the returns, and comply with the 

rules and regulations that the Secretary 

deems necessary to demonstrate tax 

liability, as prescribed, either by notice 

served or by regulations. 

Section 6011(a) provides an express 

grant of regulatory authority for the 

Secretary to prescribe regulations 

requiring any person who is liable for 

any tax imposed by the Code, or with 

respect to the collection thereof, to make 

a return or statement according to the 

forms and regulations prescribed by the 

Secretary. Section 6011(a) adds that 

every person who is required to make a 

return or statement must include the 

information required by forms or 

regulations. 

In addition, section 6707A(c)(1) of the 

Code defines the term ‘‘reportable 

transaction’’ for purposes of imposing 

penalties under section 6707A(a) 

relating to persons who fail to include 

on any return or statement any 

information with respect to a reportable 

transaction that is required under 

section 6011 to be included with such 

return or statement. In doing so, it 

provides an express delegation of 

authority to the Secretary, stating that, 

‘‘[t]he term ’reportable transaction’ 

means any transaction with respect to 

which information is required to be 

included with a return or statement 

because, as determined under 

regulations prescribed under section 

6011, such transaction is of a type 

which the Secretary determines as 

having a potential for tax avoidance or 

evasion.’’ 

Section 6111(a) provides an express 

grant of regulatory authority for the 

Secretary to require that each material 

advisor with respect to any reportable 

transaction make a return setting forth 

any information as the Secretary may 

prescribe. Such return must be filed not 

later than the date specified by the 

Secretary. 

Finally, section 7805(a) of the Code 

authorizes the Secretary to ‘‘prescribe 

all needful rules and regulations for the 

enforcement of [the Code], including all 

rules and regulations as may be 

necessary by reason of any alteration of 

law in relation to internal revenue.’’ 

Background 

I. Basis Adjustments Under Subchapter 

K 

A. In General 

Under subchapter K of chapter 1 of 

the Code (subchapter K), a distribution 

by a partnership of the partnership’s 

property (partnership property) or a 

transfer of an interest in a partnership 

(partnership interest) may result in an 

adjustment to the basis of the 

distributed property, partnership 

property, or both. A key factor is 

whether an election made by the 

partnership in accordance with 

regulations prescribed by the Secretary 

under section 754 of the Code (section 

754 election) is in effect. 

Section 754 provides that if a section 

754 election is in effect for a 

partnership, the basis of its partnership 

property will be adjusted, in the case of 

a distribution of property, in the manner 

provided by section 734 of the Code, 

and in the case of a transfer of a 

partnership interest, in the manner 

provided in section 743 of the Code. 

Unless a section 754 election is revoked 

in accordance with the regulations 

under section 754, the section 754 

election applies to all distributions of 

property by the partnership and to all 

transfers of interests in the partnership 

in the taxable year for which the section 

754 election was properly made and all 

subsequent taxable years. 

In the case of a distribution of 

partnership property to a partner by a 

partnership for which a section 754 

election is in effect, or with respect to 

which there is a substantial basis 

reduction as described in section 734(d), 

the distribution may result in an 

adjustment to the basis of the 

partnership’s remaining property 

(remaining partnership property) under 

section 734(b). A distribution of 

partnership property may also result in 

an adjustment to the basis of the 

distributed property under section 

732(a), (b), or (d) of the Code. 

If a partnership interest is transferred 

by sale or exchange or on the death of 

a partner, and the partnership either has 

a section 754 election in effect or has a 

substantial built-in loss with respect to 

the transfer of the partnership interest as 

described in section 743(d), the transfer 

may result in an adjustment to the basis 

of partnership property under section 

743(b) with respect to the transferee 

partner. 

B. Basis Adjustments Under Section 732 

Section 732 applies to determine a 

distributee partner’s basis in distributed 

property other than money. In the case 

of a distribution of partnership property 

other than in liquidation of the 

distributee partner’s partnership interest 

(current distribution), and except as 

provided under section 732(a)(2), 

section 732(a)(1) provides that the 

distributee partner’s basis in distributed 

property (other than money) is equal to 

the partnership’s adjusted basis in the 

distributed property immediately before 

the distribution. Under section 

732(a)(2), however, a distributee 

partner’s basis in distributed property is 

limited to the adjusted basis of the 

distributee partner’s partnership interest 

reduced by any money distributed to 

such partner in the same transaction. 

In the case of a distribution of 

partnership property in liquidation of 

the distributee partner’s partnership 

interest (liquidating distribution), 

section 732(b) provides that the 

distributee partner’s basis in distributed 

property (other than money) is equal to 

the adjusted basis of the distributee 

partner’s partnership interest reduced 

by any money distributed to such 

partner in the same transaction. 

In the case of a distribution of more 

than one property from a partnership, 

the basis of the distributed properties to 

which section 732(a)(2) and (b) apply 

must be allocated among the distributed 

properties under the rules of section 

732(c). Section 732(d) through (f) 

provide additional rules applicable to 

certain distributed property. See also 

§§ 1.732–1 through 1.732–3. 

C. Basis Adjustments Under Section 734 

In the case of a distribution of 

property by a partnership for which a 

section 754 election is in effect, and for 

which either the distributee partner 

recognizes gain or loss on the 

distribution, or for which the basis of 

the distributed property in the 

distributee partner’s hands, as 

determined under section 732, differs 

from the partnership’s adjusted basis in 

the distributed property immediately 

before the distribution, section 734(b) 

requires the partnership to increase or 

decrease (as applicable) the basis of its 

remaining partnership property. Also, in 

the case of a distribution of property by 

a partnership that results in a 

substantial basis reduction under 

section 734(d), the basis of remaining 

partnership property must be adjusted 

under section 734(b), even if no section 

754 election is in effect for the 

partnership. 

Section 734(b)(1) requires a 

partnership to increase the basis of its 

remaining partnership property if a 

distribution of partnership property by 

the partnership results in the distributee 

partner recognizing gain under section 


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731(a)(1) of the Code, or if property 

(other than money) to which section 

732(a)(2) or (b) applies is distributed to 

the distributee partner and the 

property’s adjusted basis to the 

partnership immediately before the 

distribution is greater than the 

distributee partner’s basis in the 

distributed property as determined 

under section 732. Section 731(a)(1) 

requires a distributee partner to 

recognize gain in a current or 

liquidating distribution to the extent 

that any money distributed to that 

partner in the distribution exceeds the 

adjusted basis of that partner’s 

partnership interest immediately before 

the distribution. The amount of the 

basis increase to the partnership’s 

remaining property under section 

734(b)(1) following a distribution of 

partnership property to a partner is 

equal to the amount of gain recognized 

by the distributee partner in the 

distribution under section 731(a)(1), and 

the excess of the partnership’s adjusted 

basis in the distributed property 

immediately before the distribution, 

over the distributee partner’s basis in 

the distributed property as determined 

under section 732. 

Section 734(b)(2) requires a 

partnership to decrease the basis of its 

remaining property if a distribution of 

property by the partnership results in 

the distributee partner recognizing loss 

under section 731(a)(2), or if property 

(other than money) is distributed to the 

distributee partner in a distribution to 

which section 732(b) applies and the 

property’s adjusted basis to the 

partnership immediately before the 

distribution is less than the distributee 

partner’s basis in the distributed 

property as determined under section 

732. Under section 731(a)(2), a 

distributee partner may recognize a loss 

in a liquidating distribution of that 

partner’s interest in the partnership to 

the extent that such partner received in 

the distribution only money, unrealized 

receivables described in section 751(c) 

of the Code, or inventory items 

described in section 751(d). In such a 

case, the distributee partner is required 

to recognize a loss to the extent that 

such partner’s adjusted basis in the 

partnership interest exceeds the sum of 

any money distributed to that partner in 

the distribution and the basis to the 

distributee partner (determined under 

section 732) of any unrealized 

receivables or inventory items received 

by that partner in the distribution. The 

amount of the basis decrease to the 

partnership’s remaining property under 

section 734(b)(2) following a 

distribution of partnership property to a 

partner is equal to the amount of loss 

recognized by the distributee partner in 

the distribution under section 731(a)(2), 

and the excess of the distributee 

partner’s basis in the distributed 

property as determined under section 

732, over the partnership’s adjusted 

basis in the distributed property 

immediately before the distribution. 

A partnership for which no section 

754 election is in effect is subject to a 

mandatory basis adjustment under 

section 734(b)(2) if there is a substantial 

basis reduction with respect to a 

distribution of partnership property. 

Under section 734(d), a substantial basis 

reduction with respect to a distribution 

of partnership property occurs if the 

sum of the amount of loss recognized to 

the distributee partner on the 

distribution, plus any increase in basis 

in the distributed property to the 

distributee partner under section 732(b), 

exceeds $250,000. 

D. Basis Adjustments Under Section 

743(B) 

Generally, if a partnership interest is 

transferred in a sale or exchange or on 

the death of a partner, the transferee 

partner’s basis in the transferred 

partnership interest is determined under 

section 742 of the Code and the basis of 

partnership property is determined 

under section 743(a). Section 742 

provides that the transferee partner’s 

basis in a partnership interest acquired 

other than by contribution is 

determined under part II of subchapter 

O of chapter 1 of the Code, beginning at 

section 1011 of the Code and following. 

Thus, for example, a transferee partner’s 

basis in a partnership interest acquired 

by purchase generally is the transferee 

partner’s cost basis under section 1012 

of the Code. Section 743(a) provides 

that, in the case of a transfer of a 

partnership interest by sale or exchange 

or on the death of a partner, the basis 

of partnership property is not adjusted 

unless either a section 754 election is in 

effect for the partnership, or the 

partnership has a substantial built-in 

loss with respect to the transfer of the 

partnership interest. 

Under section 743(b), in the case of a 

transfer of a partnership interest by sale 

or exchange or on the death of a partner, 

a partnership for which a section 754 

election is in effect or that has a 

substantial built-in loss with respect to 

the transfer of the partnership interest 

must increase or decrease (as 

applicable) the adjusted basis of 

partnership property with respect to the 

transferee partner. 

Section 743(b)(1) provides that the 

adjusted basis of partnership property is 

increased by the excess of the transferee 

partner’s basis in the transferred 

partnership interest, over the transferee 

partner’s proportionate share of the 

adjusted basis of partnership property. 

Section 743(b)(2) provides that the 

adjusted basis of partnership property is 

decreased by the excess of the transferee 

partner’s proportionate share of the 

adjusted basis of partnership property, 

over the transferee partner’s basis in the 

transferred partnership interest. 

A partnership for which no section 

754 election is in effect is subject to a 

mandatory basis adjustment under 

section 743(b) with respect to a transfer 

of a partnership interest if the 

partnership has a substantial built-in 

loss with respect to the transfer of the 

partnership interest. Under section 

743(d)(1), a partnership has a 

substantial built-in loss with respect to 

a transfer of an interest in the 

partnership if either the partnership’s 

adjusted basis in its property exceeds 

the fair market value of such property 

by more than $250,000, or the transferee 

partner would be allocated a loss of 

more than $250,000 if the partnership 

assets were sold for cash equal to their 

fair market value immediately after the 

transfer. 

The flush language at the end of 

section 743(b) provides that, under 

regulations prescribed by the Secretary, 

a basis adjustment under section 743(b) 

is an adjustment to the basis of 

partnership property with respect to the 

transferee partner only. See generally 

§ 1.743–1. The transferee partner’s 

proportionate share of the partnership’s 

adjusted basis in its property generally 

is determined in accordance with the 

transferee partner’s interest in the 

partnership’s previously taxed capital 

(including the transferee partner’s share 

of partnership liabilities) under § 1.743– 

1(d). 

In the case of a transferee partner who 

acquired all or part of the partner’s 

partnership interest by a transfer with 

respect to which no section 754 election 

was in effect for the partnership, and to 

whom a distribution of property (other 

than money) is made with respect to the 

transferred interest within two years, 

section 732(d) and the regulations 

thereunder allow the partner to make an 

election to treat as the adjusted basis of 

the distributed property the adjusted 

basis such property would have if the 

adjustment under section 743(b) were in 

effect with respect to the partnership 

property. 

Under § 1.732–1(d)(4), the special 

basis adjustment under section 732(d) is 

required to apply to a distribution of 

property to a partner who acquired all 

or part of the partner’s partnership 

interest by a transfer from a partnership 


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Federal Register / Vol. 90, No. 8 / Tuesday, January 14, 2025 / Rules and Regulations 2961 

1On July 24, 2024, a notice of correction was 

published in the Federal Register (89 FR 59864) to 

correct minor typographical errors in the preamble 

of REG–124593–23. 

for which no section 754 election is in 

effect for the taxable year of such 

transfer, whether or not the distribution 

is made within two years of such 

transfer, if at the time the partnership 

interest was transferred, (i) the fair 

market value of all partnership property 

(other than money) exceeded 110 

percent of its adjusted basis to the 

partnership, (ii) an allocation of basis 

under section 732(c) upon a liquidation 

of the transferee partner’s interest in the 

partnership immediately after the 

transfer of such interest would have 

resulted in a shift of basis from property 

not subject to an allowance for 

depreciation, depletion, or amortization 

to property subject to such an 

allowance, and (iii) a basis adjustment 

under section 743(b) would change the 

basis to the transferee partner of the 

property actually distributed. 

E. Allocation of Basis Adjustments 

Under Sections 734 and 743 

Section 734(c) states that a basis 

adjustment under section 734(b) is 

allocated among partnership properties 

under the rules of section 755 of the 

Code. Section 743(c) states that a basis 

adjustment under section 743(b) is 

allocated among partnership properties 

under the rules of section 755. 

Section 755(a) generally requires basis 

adjustments under section 734(b) or 

section 743(b) to be allocated in a 

manner that has the effect of reducing 

the difference between the fair market 

value and the adjusted basis of 

partnership properties or in any other 

manner permitted by regulations 

prescribed by the Secretary. In addition, 

section 755(b) requires these basis 

adjustments to be allocated to 

partnership property of a like character 

or to subsequently acquired partnership 

property of a like character if such 

property is not available or has 

insufficient basis at the time of the basis 

adjustment (because a decrease in the 

adjusted basis of the property would 

reduce the basis of such property below 

zero). Section 755(c) provides a special 

rule that prohibits allocating a basis 

decrease under section 734(b) to the 

stock of a corporation that is a partner 

of the partnership (or that is related to 

a partner in the partnership within the 

meaning of section 267(b) of the Code or 

section 707(b)(1) of the Code). 

F. Common Terminology for Bases With 

Respect to a Partnership Interest 

A partner’s adjusted basis in its 

partnership interest commonly is 

referred to as the partner’s ‘‘outside 

basis’’ in its partnership interest. A 

partnership’s adjusted basis in its 

property commonly is referred to as the 

‘‘inside basis’’ of the partnership’s 

property. Each partner has a share of 

inside basis. 

II. Proposed Regulations 

On June 18, 2024, the Department of 

the Treasury (Treasury Department) and 

the IRS published a notice of proposed 

rulemaking (REG–124593–23) in the 

Federal Register (89 FR 51476) 

containing proposed regulations under 

section 6011 (proposed regulations).1

The proposed regulations would have 

added § 1.6011–18 identifying certain 

partnership related-party basis 

adjustment transactions as ‘‘transactions 

of interest’’ for purposes of sections 

6011, 6111, and 6112 and § 1.6011– 

4(b)(6). The provisions of the proposed 

regulations are explained in greater 

detail in the preamble to the proposed 

regulations. 

The Treasury Department and the IRS 

received written comments in response 

to the proposed regulations. The 

comments are available for public 

inspection at www.regulations.gov or 

upon request. A public hearing on the 

proposed regulations was conducted in 

person and telephonically on September 

17, 2024, during which two presenters 

provided comments. After full 

consideration of the comments received, 

these final regulations adopt the 

proposed regulations with modifications 

in response to the comments as 

described in the Summary of Comments 

and Explanation of Revisions. 

Summary of Comments and 

Explanation of Revisions 

This Summary of Comments and 

Explanation of Revisions summarizes 

the comments received in response to 

the proposed regulations, and describes 

and responds to comments concerning: 

(1) transactions of interest generally, (2) 

the usefulness and burden of reporting 

the transactions of interest identified by 

the proposed regulations, (3) the 

specific transactions of interest 

identified by the proposed regulations, 

(4) the proposed $5 million threshold 

amount for reporting (proposed $5 

million threshold amount), (5) the 

relatedness standard, (6) substantially 

similar transactions, and (7) 

participation in a transaction of interest 

identified by the proposed regulations. 

In general, as described herein, the final 

regulations adopt several commenters’ 

suggestions, which limit the scope of 

the transactions identified by the 

proposed regulations in an effort to 

exclude from additional reporting 

certain common business transactions 

that do not meet large economic 

thresholds. 

Comments merely summarizing the 

statute or proposed regulations, 

recommending revisions to the Code, 

addressing unrelated issues, or 

recommending changes to IRS forms or 

procedures are generally not addressed 

in this Summary of Comments and 

Explanation of Revisions or adopted in 

these final regulations. Additionally, 

this Treasury decision does not address 

comments addressing the issues and 

rules specific to Notice 2024–54, 2024– 

28 IRB 24, which the Treasury 

Department and the IRS continue to 

consider. Unless otherwise indicated in 

this Summary of Comments and 

Explanation of Revisions, provisions of 

the proposed regulations with respect to 

which no comments were received are 

adopted without substantive change. 

I. Transactions of Interest Generally 

A. General Reporting Rules Under 

§ 1.6011–4 

Section 1.6011–4(e)(2)(i) requires a 

taxpayer to report a transaction entered 

into prior to the publication of guidance 

identifying the transaction as a 

transaction of interest after the filing of 

the taxpayer’s tax return (including an 

amended return) reflecting the 

taxpayer’s participation in the 

transaction of interest (later identified 

transaction) if the statute of limitations 

for assessment of tax is still open when 

the transaction becomes a transaction of 

interest. Under § 1.6011–4(e)(2)(i), 

taxpayers are generally required to 

report a later identified transaction by 

filing a disclosure statement with the 

Office of Tax Shelter Analysis (OTSA) 

within 90 calendar days after the date 

on which a transaction becomes a 

transaction of interest. 

Some commenters asserted that 

taxpayers should not be required to 

report later identified transactions 

because taxpayers were not on notice 

that certain partnership related-party 

basis adjustment transactions would be 

identified as transactions of interest. 

These commenters asserted that certain 

of the transactions identified in the 

proposed regulations are typical 

business transactions for which 

taxpayers would not have known to 

keep records. Two commenters 

requested that the required time for 

filing a disclosure statement with the 

OTSA should be expanded to one year. 

Another commenter recommended that 

the final regulations apply prospectively 

to transactions of interest that occur in 

taxable years beginning on or after the 

date of the final regulations. 


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2The commenter also argued that it would be 

inappropriate to identify the transactions identified 

in the proposed regulations as listed transactions 

under § 1.6011–4(b)(2). This comment is not 

relevant to these final regulations, which solely 

identify certain transactions as transactions of 

interest and not as listed transactions. 

Although the reporting required by 

§ 1.6011–4(e)(2)(i) may apply to 

transactions undertaken before the 

identification of the transactions as 

transactions of interest, the disclosure 

obligation is prospective rather than 

retroactive, since it arises only when the 

transaction becomes a transaction of 

interest after the final regulations are 

published in the Federal Register. 

Additionally, taxpayers have been on 

notice since the issuance of the 

proposed regulations that reporting of 

partnership related-party basis 

adjustment transactions may soon be 

required. Nevertheless, given the 

additional time that taxpayers may need 

to identify and prepare disclosures for 

already-completed transactions, 

§ 1.6011–18(h)(1) provides an extension 

of time of 90 additional calendar days 

after the date specified in § 1.6011– 

4(e)(2)(i) for taxpayers to meet their 

obligations to disclose to the OTSA their 

participation in such later identified 

transactions. 

B. Material Advisor Rules 

The proposed regulations provided no 

special rules for material advisors. One 

commenter requested that the final 

regulations add an ‘‘actual knowledge’’ 

qualifier for material advisors such that 

advisors would be required to disclose 

and list only those transactions 

described by the proposed regulations 

that would be reportable based on their 

actual knowledge. The rules for material 

advisors under sections 6111 and 6112, 

and the corresponding regulations 

under §§ 301.6111–3 and 301.6112–1 of 

the Procedure and Administration 

Regulations (26 CFR part 301), which 

apply to all transactions of interest, do 

not have a knowledge qualifier. After 

consideration of this comment, the 

Treasury Department and the IRS have 

determined that adding a knowledge 

qualifier for this transaction of interest 

is not warranted. Accordingly, this 

comment is not adopted in the final 

regulations. 

One commenter requested that the 

final regulations apply reporting 

requirements for material advisors only 

prospectively for transactions of interest 

that occur in taxable years beginning on 

or after the date of the final regulations, 

or, alternatively, that material advisors 

be permitted to report transactions of 

interest to the OTSA within one year as 

opposed to by the last day of the month 

following the end of the calendar 

quarter in which the final regulations 

are published. Section 301.6111–3 sets 

forth the requirements for disclosures 

from material advisors. In particular, 

§ 301.6111–3(e) provides that a material 

advisor’s disclosure statement must be 

filed with the OTSA by the last day of 

the month that follows the end of the 

calendar quarter in which the advisor 

became a material advisor with respect 

to the transaction. Section 301.6111– 

3(b)(4)(iii) provides that for a 

transaction that was not a reportable 

transaction but is identified as a 

transaction of interest in published 

guidance after the occurrence of the 

events described in § 301.6111– 

3(b)(4)(i), the person will be treated as 

becoming a material advisor on the date 

the transaction is identified as a 

transaction of interest. Additionally, 

material advisors have been on notice 

since the issuance of the proposed 

regulations that reporting of partnership 

related-party basis shifting transactions 

may soon be required. However, given 

the additional time that may be needed 

for material advisors to identify and 

prepare disclosures for alreadycompleted transactions, § 1.6011– 

18(h)(2) provides an extension of 90 

additional calendar days after the date 

specified in § 301.6111–3(e) for material 

advisors to meet their disclosure 

obligations. 

II. Usefulness and Burden of Reporting 

the Transactions of Interest Identified by 

the Proposed Regulations 

A. Comments Suggesting the IRS 

Already Has the Information It Needs 

One commenter stated that the 

Treasury Department and the IRS 

already have sufficient information to 

determine that the transactions 

identified by the proposed regulations 

are abusive and thus the proposed 

regulations are unnecessary.2 This 

commenter stated that the Treasury 

Department and the IRS have already 

concluded that the transactions 

identified in the proposed regulations 

are abusive through IRS positions taken 

in litigation and the issuance of Rev. 

Rul. 2024–14, 2024–28 IRB 18 (advising 

taxpayers that the IRS would challenge 

certain partnership related-party basis 

adjustment transactions under the 

codified economic substance doctrine in 

section 7701(o) of the Code). The 

commenter also asserted that 

transactions of interest are reserved for 

transactions that have the potential for 

tax avoidance, but that the Treasury 

Department and the IRS failed to 

articulate a rational connection between 

‘‘the facts found and the choice made.’’ 

Another commenter suggested that the 

proposed regulations relied on the 

application of Rev. Rul. 2024–14, 

implying that the proposed regulations 

cannot have effect if the IRS does not 

prevail in pending litigation. 

The Treasury Department and the IRS 

do not agree with these comments. The 

final regulations identify certain 

partnership related-party basis 

adjustment transactions as transactions 

of interest under § 1.6011–4(b)(6), rather 

than as listed transactions under 

§ 1.6011–4(b)(2). This is because the 

Treasury Department and the IRS have 

determined that these transactions have 

the potential for tax avoidance through 

the IRS’s examination of certain 

transactions that are abusive but are not 

aware of the entire universe of 

partnership related-party basis 

adjustment transactions and whether 

every transaction is per se abusive. As 

explained in the preamble to the 

proposed regulations, the Treasury 

Department and the IRS have become 

aware of related persons using 

partnerships to engage in transactions 

that inappropriately exploit the basis 

adjustment provisions of subchapter K 

applicable to distributions of 

partnership property or transfers of 

partnership interests and wish to gather 

additional information. This awareness 

results from the IRS’s examination of 

various partnership transactions 

involving related parties in which basis 

in distributed property or partnership 

property is shifted in a manner that 

results in significant tax benefits 

attributable to the basis shift for the 

related parties but with little or no tax 

or economic cost (abusive partnership 

related-party basis adjustment 

transactions), thus artificially generating 

(or regenerating) Federal income tax 

benefits that results in significant tax 

savings without a corresponding 

economic outlay. The transactions 

identified as transactions of interest in 

these final regulations have the 

potential for tax avoidance because they 

share certain indicia with these abusive 

partnership related-party transactions. 

Rev. Rul. 2024–14 contains several 

examples of abusive transactions 

discovered by the IRS, and the legal 

analysis it contains is independent of 

the requirement to disclose the 

transactions described in these 

regulations as transactions of interest. In 

other words, the issuance of a revenue 

ruling does not preclude further 

scrutiny of partnership related-party 

basis adjustment transactions by 

identifying those transactions as 

transactions of interest. Similarly, 

pending litigation is irrelevant to the 


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identification of these transactions as 

transactions of interest. Accordingly, the 

final regulations do not adopt these 

comments. 

A few commenters questioned why 

the Treasury Department and the IRS 

need to identify certain partnership 

related-party basis adjustment 

transactions as transactions of interest if 

these transactions are already disclosed 

as part of the Form 1120, U.S. 

Corporation Income Tax Return, or 

Form 1065, U.S. Return of Partnership 

Income. These commenters generally 

contended that existing reporting 

requirements already accomplish the 

objectives of the proposed regulations 

and that adding these transactions as 

transactions of interest is therefore 

unnecessary. One commenter 

recommended that instead of 

identifying the transactions described in 

the proposed regulations as transactions 

of interest, the Form 1065 should be 

modified to ask questions to determine 

whether partnership related-party basis 

adjustment transactions occurred during 

the taxable year. 

The Forms 1120 and 1065, including 

statements or schedules required to be 

attached thereto, are filed as a part of a 

taxpayer’s tax return and do not include 

all the information contained on Form 

8886, Reportable Transaction Disclosure 

Statement. The Forms 1120 and 1065 

also do not alert the OTSA to the 

taxpayer’s participation in a transaction 

of interest, nor does the filing of a tax 

return result in disclosure and other 

obligations of material advisors to the 

transaction. Moreover, the purpose of 

the reporting requirements for a 

transaction of interest is to allow the 

OTSA and the IRS to learn detailed 

information about the identified 

transaction using limited resources, and 

without having to distill information 

obtained through annual filing 

requirements or to open taxpayer 

examinations. Accordingly, these 

comments are not adopted in the final 

regulations. 

B. Comments Addressing Compliance 

Burdens and Costs 

Several commenters asserted that 

complying with the reporting 

requirements for the transactions 

identified by the proposed regulations 

would be unduly burdensome and 

result in excessive costs for small 

businesses. One commenter asserted 

that the proposed regulations stray from 

Congressional intent of simplicity by 

subjecting family business owners and 

their advisors to substantial reporting 

obligations and penalties. Another 

commenter asserted that the proposed 

regulations would result in many 

protective disclosures that the Treasury 

Department and the IRS could not 

handle. 

The impact on taxpayers who engage 

in legitimate business transactions with 

related parties resulting in positive 

partnership basis adjustments that meet 

the increased threshold amounts in 

these final regulations (applicable 

threshold amounts) discussed in Part IV 

of this Summary of Comments and 

Explanation of Revisions, or who may 

decide they need to file a protective 

disclosure, is far outweighed by the 

benefit of requiring disclosure for the 

identified transactions, which have the 

potential for tax avoidance. Combatting 

abusive tax avoidance is a priority for 

the Federal Government and 

partnership transactions that shift basis 

among related parties without a 

corresponding economic or tax impact 

have the potential for tax avoidance. 

Moreover, the identification of the 

transactions described in these final 

regulations should not impact small 

business owners. If a taxpayer is 

engaging in one or more of the complex 

transactions identified by these final 

regulations with a related party that 

results in positive basis adjustments in 

a single taxable year that exceed the 

applicable threshold amounts of $10 

million or more (or $25 million for later 

identified transactions), the taxpayer is 

not likely a small business owner and 

the reporting obligations outlined in 

these final regulations should not be 

unduly burdensome. Accordingly, these 

comments are not adopted in the final 

regulations. 

C. Comments Requesting That the 

Proposed Regulations Be Withdrawn or 

Reissued 

A few commenters suggested that the 

proposed regulations be withdrawn, 

stating that they are overbroad. One 

commenter suggested that due to the 

number of their recommendations, the 

proposed regulations should be 

reproposed. Another commenter 

suggested that the proposed regulations 

be withdrawn and reproposed after the 

forthcoming proposed regulations 

described in Notice 2024–54 are 

finalized. The final regulations are 

narrowly tailored to identify 

transactions in which taxpayers may be 

exploiting the mechanical basis 

adjustment provisions in subchapter K 

to produce significant tax benefits with 

little to no economic cost to the 

partners. Taxpayers are able to engage in 

these transactions because the parties 

are related. In most cases, these 

transactions would not likely occur 

between partners negotiating on an 

arm’s length basis. The purpose of the 

final regulations is to determine the 

ways in which related taxpayers are 

inappropriately shifting basis using the 

provisions of subchapter K, how they 

are creating opportunities to engage in 

transactions that generate inappropriate 

basis shifts (for example, how insideoutside basis disparities are being 

created), and the economic impact of 

the Federal income tax consequences 

created by the basis shifting transactions 

(for example, the extent to which gain 

is reduced or cost recovery is increased). 

It is in the interest of sound tax 

administration to gather this 

information now. As disclosures 

pursuant to this regulation will inform 

the Treasury Department and the IRS on 

transactions for which further 

examination or further guidance may be 

warranted, it does not make sense to 

withdraw the proposed regulations and 

wait to repropose them until the 

forthcoming regulations described in 

Notice 2024–54 are both proposed and 

finalized. Moreover, these final 

regulations are separate from, and do 

not rely on, the forthcoming proposed 

regulations described in Notice 2024– 

54. The comments to these proposed 

regulations have been helpful and have 

allowed the Treasury Department and 

the IRS to make several modifications in 

response to comments that limit the 

scope of the rules, as described in this 

Summary of Comments and Explanation 

of Revisions. 

III. Transactions of Interest Identified in 

the Proposed Regulations 

The proposed regulations would have 

identified four kinds of partnership 

related-party basis adjustment 

transactions as transactions of interest. 

A basis adjustment transaction under 

proposed § 1.6011–18(c)(1)(i) would 

occur if a partnership distributes 

property to a person who is a related 

partner in a current or liquidating 

distribution, the partnership increases 

the basis of one or more of its remaining 

properties under section 734(b) and (c), 

and a proposed $5 million threshold 

amount is met (section 734(b) TOI). A 

basis adjustment transaction under 

proposed § 1.6011–18(c)(1)(ii) would 

occur if a partnership distributes 

property to a partner who is related to 

one or more partners in liquidation of a 

partnership interest (or in complete 

liquidation of the partnership), the basis 

of one or more distributed properties is 

increased under section 732(b) and (c), 

and a proposed $5 million threshold 

amount is met (section 732(b) TOI). A 

basis adjustment transaction under 

proposed § 1.6011–18(c)(1)(iii) would 

occur if a partnership distributes 

property to a partner who is related to 


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one or more partners, the basis of one 

or more distributed properties is 

increased under section 732(d), the 

related partner acquired all or a part of 

its interest in the partnership in a 

transaction that would have been a 

transaction described in proposed 

§ 1.6011–18(c)(2) if the partnership had 

a section 754 election in effect for the 

year of transfer, and a proposed $5 

million threshold amount is met 

(section 732(d) TOI). A basis adjustment 

transaction under proposed § 1.6011– 

18(c)(2) would occur if a partner 

transfers an interest in the partnership 

to a related transferee or to a person 

who is related to one or more existing 

partners in a nonrecognition transaction 

(as defined in proposed § 1.6011– 

18(b)(6)), the basis of one or more 

partnership properties is increased 

under section 743(b)(1) and (c), and a 

proposed $5 million threshold amount 

is met (section 743(b) TOI). 

A. General Reporting Exclusions 

1. Tax-Avoidance Indicators 

One commenter recommended 

requiring reporting only for transactions 

with defined indicators of potential tax 

avoidance or evasion, rather than the 

involvement of a related or taxindifferent party, but did not suggest 

other indicators or explain how the 

current indicators are insufficient. The 

Treasury Department and the IRS have 

made modifications to the proposed 

regulations as described herein to better 

target the identification of transactions 

for which reporting is required. 

2. Basis Shifts Between Assets of Like 

Character 

One commenter recommended 

excluding transactions identified as a 

basis adjustment transaction of interest 

in cases in which (1) basis is shifted 

between assets of like character (that is, 

capital asset to capital asset or ordinary 

income asset to ordinary income asset), 

(2) basis is shifted from non-recoverable 

property to non-recoverable property or 

the basis adjustment does not provide a 

shorter recovery period, and (3) the 

property receiving the basis increase is 

not sold within two years of the basis 

increase. The Treasury Department and 

the IRS agree that a basis shift to a likekind asset that has the same or a longer 

recovery period than the asset to which 

the basis was shifted from presents less 

risk of tax avoidance. However, the 

Treasury Department and the IRS do not 

agree that it would be appropriate in 

such circumstances to require reporting 

only if the property is disposed of 

within two years after the basis increase 

as there is still a potential for abuse if 

the property is disposed of after two 

years. A two-year rule would allow 

related taxpayers to increase the basis in 

property in anticipation of a future sale 

and would exclude transactions that 

present significant risks of tax 

avoidance. Accordingly, it is in the 

interest of sound tax administration to 

identify certain partnership relatedparty basis adjustment transactions as 

transactions of interest in the year of the 

basis shift and the commenter’s 

recommendation is not adopted in the 

final regulations. 

3. Requiring Knowledge or Intent 

A few commenters recommended 

including an intent requirement for the 

transactions identified by the proposed 

regulations as transactions of interest. 

One commenter recommended that 

taxpayers that are unaware of or have no 

reason to know that a transaction 

identified by the proposed regulations is 

reportable be excused from disclosure. 

Another commenter recommended 

including a subjective test for intent and 

providing safe harbors and exceptions 

for business separations and successionplanning transactions. 

Including an intent requirement for 

the transactions identified by the 

proposed regulations would introduce a 

subjective element, which is 

inconsistent with the IRS’s need to 

gather additional information on the 

identified transactions to ascertain their 

potential for tax avoidance. Including an 

intent requirement in these regulations 

would also frustrate the IRS’s ability to 

determine which of the basis adjustment 

transactions are impermissible tax 

avoidance transactions and to 

effectively and efficiently address the 

tax avoidance. Moreover, the general 

transaction of interest reporting 

requirements under section 6011 do not 

include a knowledge component; 

taxpayers are required to report the tax 

consequences of their transactions 

identified as transactions of interest 

regardless of whether they are aware of 

the reporting requirements. As further 

described in Parts III.A.4 and III.E of 

this Summary of Comments and 

Explanation of Revisions, it is not 

appropriate to incorporate an exception 

or safe harbor for business separations 

or succession-planning transactions into 

the final regulations as these 

transactions are no less likely to be 

structured to avoid tax, and thus may 

also have the potential for tax 

avoidance. Accordingly, these 

comments are not adopted in the final 

regulations. 

4. Excluding Certain Basis-Adjustment 

Transactions 

One commenter recommended 

excluding certain basis-adjustment 

transactions that cure inside-outside 

basis disparities created by section 

734(b) adjustments, section 704(c) 

methods, contributions, distributions, 

and revaluations. Another commenter 

recommended that the final regulations 

consider common reasons why an 

inside-outside basis disparity might 

arise, such as transaction costs required 

to be capitalized to outside basis, certain 

income exclusions related to foreign 

corporations owned through a 

partnership, or the use of various 

section 704(c) methods. This commenter 

recommended that certain acquisitions 

of partnership businesses that may 

involve or create related-partner 

relationships, including distributions of 

lower-tier partnership interests to an 

upper-tier partnership and liquidations 

of blocker subsidiaries, be excluded as 

transactions of interest. Another 

commenter requested that the final 

regulations exclude partnershipincorporation transactions, including 

transactions described in Rev. Rul. 84– 

111, 1984–2 C.B. 88, Situation 2 (assetsup incorporation) and Situation 3 

(interests-over incorporation). A few 

commenters requested that the final 

regulations exclude from the 

transactions identified as section 732(b) 

TOIs and section 734(b) TOIs any basis 

adjustments resulting from an actual or 

deemed distribution in the case of a 

partnership merger or division done for 

commercial reasons, such as to allow a 

partial sale and continuation of certain 

investments held by a private equity or 

other investment fund. 

In response to comments received on 

the proposed regulations, these final 

regulations adopt several suggestions to 

limit the scope of the transactions 

identified by the proposed regulations 

to exclude from reporting common 

business transactions that do not meet 

large, economic thresholds. However, 

providing a blanket exclusion for certain 

transactions that may be common 

business transactions under specific 

circumstances, but may also have the 

potential for tax avoidance, would 

defeat the purpose of identifying the 

transactions as transactions of interest. 

For example, a partnership merger or 

division involving related parties may 

be undertaken with the intent to 

increase the basis of an asset that is 

subsequently disposed of in a 

recognition transaction or to increase 

cost recovery deductions. Moreover, one 

of the purposes of the final regulations 

is to gather additional information on 


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how taxpayers are creating 

opportunities to shift basis between 

related parties using the provisions of 

subchapter K (for example, information 

related to how inside-outside basis 

disparities are being created). Providing 

an exclusion from reporting for 

transactions that cure inside-outside 

disparities created through certain 

section 704(c) methods, contributions, 

adjustments, distributions or 

revaluations would nullify most of the 

disclosures required by the final 

regulations as these are the techniques 

used to create opportunities for 

partnership related-party basis shifting. 

For these reasons, the commenters’ 

suggestions for exclusions of certain 

transactions are not adopted in the final 

regulations. 

5. Publicly Traded Partnerships 

One commenter expressed concern 

that publicly traded partnerships within 

the meaning of section 7704 of the Code 

(PTPs) are unable to identify the buyers 

and sellers of interests therein, making 

it impossible to determine whether a 

transfer is made between related parties. 

This commenter stated that PTPs 

frequently engage in transactions that 

result in section 743(b) adjustments as 

part of normal public trading and 

capital-markets transactions and that the 

final regulations should add carveouts 

for transactions of PTPs. At a minimum, 

the commenter recommended that the 

final regulations implement an 

ownership threshold for related partners 

of five percent or more of the PTP to 

allow such persons to be identified by 

disclosures required to be made to the 

U.S. Securities and Exchange 

Commission. Another commenter 

recommended that basis adjustments 

resulting from an acquisition of a unit 

in a PTP, including as part of any 

redemption of publicly traded units by 

the PTP, should be excluded from the 

transactions identified as transactions of 

interest. 

The Treasury Department and the IRS 

agree that due to PTPs having a large 

number of PTP unitholders that are not 

related partners within the meaning of 

the final regulations, and the 

unlikelihood that unrelated PTP 

unitholders would engage in the 

transactions identified as transactions of 

interest in the final regulations, it is 

appropriate to exclude basis 

adjustments involving a transfer of or a 

distribution with respect to partnership 

interests in a PTP, except basis 

adjustments resulting from certain 

material transactions involving 

partnership interests held by related 

partners in a PTP. Accordingly, the final 

regulations provide that in the case of a 

PTP, a participating partner means a 

partner of the PTP but only to the extent 

that the partner engages in a private 

transfer (as described in § 1.7704–1(e)), 

redemption and repurchase agreement 

(as described in § 1.7704–1(f)), or 

private placement (as described in 

§ 1.7704–1(h)) of a partnership interest 

with a related partner and the 

transaction is not otherwise excluded as 

a transaction of interest described in the 

final regulations. 

B. Cash as Property for Purposes of 

Section 734(b) TOIs 

One commenter requested that the 

final regulations clarify that cash is not 

included as ‘‘property’’ for purposes of 

a section 734(b) TOI and thus positive 

basis adjustments resulting from a 

distribution of cash be excluded from 

transactions identified as transactions of 

interest. Another commenter asked for 

clarification that cash distributions in 

excess of basis that result in positive 

basis adjustments under section 734(b) 

are identified as transactions of interest 

only to the extent that the distributions 

are made to a tax-indifferent party. 

As a general matter, the text of section 

734 makes no distinction between cash 

and other partnership property. A cash 

distribution to a related partner could be 

treated as a section 734(b) TOI to the 

extent that any basis increases generated 

under section 734(b)(1) exceed the gain 

recognized under section 731(a)(1) (or 

otherwise) with respect to which any 

tax imposed under subtitle A of the 

Code (subtitle A) is required to be paid 

by the related partners. However, the 

Treasury Department and the IRS note 

that if gain is recognized on a 

distribution of cash that results in a 

basis adjustment under section 

734(b)(1)(A) and tax imposed under 

subtitle A is required to be paid on such 

gain by any of the related partners, that 

portion of the basis adjustment would 

not be counted towards the overall 

applicable threshold amount in 

determining whether disclosure of a 

transaction of interest is required. 

C. Acquisition and Integration 

Transactions for Purposes of Section 

743(b) TOIs 

A few commenters recommended 

excluding from a section 743(b) TOI 

transactions in which a party purchases 

a partnership interest in an arm’s-length 

transaction, receives a basis adjustment 

under section 743(b), then transfers the 

partnership interest to a related person 

in a nonrecognition transaction (for 

example, a transfer to a corporation 

under section 351(a) or to a partnership 

under section 721(a)) that causes a recomputation and re-allocation of the 

section 743(b) adjustment for the benefit 

of the related-party transferee. Under 

the proposed regulations, assuming the 

proposed $5 million threshold amount 

was met, such a transaction would be 

reportable if the nonrecognition transfer 

to the related transferee results in a 

positive basis increase. 

The Treasury Department and the IRS 

agree that a positive section 743(b) basis 

adjustment acquired through an arm’slength transaction (for example, a 

transaction that would not be a 

reportable transaction under these final 

regulations, without regard to the sixyear lookback period) to which a related 

transferee succeeds should not be a 

reportable transaction, except to the 

extent of any additional positive basis 

adjustment resulting from the 

nonrecognition transfer. This is because 

if the original section 743(b) adjustment 

was acquired through an arm’s length 

transaction that would not be reportable 

under the final regulations, a 

corresponding amount of gain should 

have been recognized and tax imposed 

under subtitle A should have been paid 

by the original transferor. Thus, a 

subsequent nonrecognition transfer by 

the original transferee that results in the 

same section 743(b) adjustment has 

little potential for tax abuse. 

Accordingly, the final regulations 

provide that if a partner receives an 

interest in a partnership from a person 

in a recognition transaction (first 

transfer) and the basis of one or more 

partnership properties is increased 

under section 743(b)(1) and (c), and 

subsequently the partner (transferor) 

transfers the partnership interest to a 

person related to the transferor 

(transferee) in a nonrecognition 

transaction (subsequent transfer), the 

subsequent transfer is a transaction of 

interest only if the transferee’s basis 

adjustment under section 743(b)(1) and 

(c) resulting from the subsequent 

transfer exceeds the amount of the 

transferor’s remaining basis adjustment 

that is attributable to the transferred 

partnership interest (excess amount), 

and the applicable threshold amount is 

met. The final regulations further 

provide that only the excess amount is 

counted towards the applicable 

threshold amount and that a transferor’s 

remaining basis adjustment is equal to 

the amount of the transferor’s basis 

adjustment under section 743(b)(1) and 

(c) resulting from the first transfer as 

adjusted under section 1016(a)(2) to 

reflect any recovery of the basis 

adjustment or as otherwise adjusted 

prior to the subsequent transfer. 


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D. Transfers Between Unrelated Partners 

for Purposes of Section 743(b) TOIs 

Many commenters recommended 

excluding transfers between unrelated 

parties from a section 743(b) TOI if the 

transferee is related to one or more 

existing partners. Several of these 

commenters recommended that the 

transaction identified by proposed 

§ 1.6011–18(c)(2) should be limited to 

transfers between related transferors and 

transferees. The Treasury Department 

and the IRS agree with this suggestion 

as transfers between related parties have 

a clear potential for tax avoidance 

whereas transfers between unrelated 

parties if the transferee is related to one 

or more existing partners may be much 

harder to structure to achieve the 

desired tax avoidance. Additionally, an 

unrelated transferor may not have 

reason to know that a transferee is 

related to one or more existing partners. 

Accordingly, the definition of ‘‘related 

partner’’ in § 1.6011–18(b)(9) in the final 

regulations provides that in the case of 

a section 743(b) TOI, a related partner 

means a transferor and transferee of a 

partnership interest that are related to 

each other immediately before or 

immediately after a section 743(b) TOI. 

The definition in the final regulations 

does not include a transferee that is 

unrelated to a transferor but is related to 

one or more of the partners in the 

partnership. 

E. Transfers Upon Death 

For purposes of a section 743(b) TOI, 

proposed § 1.6011–18(b)(2) would have 

defined a nonrecognition transaction as 

defined in section 7701(a)(45)—that is, 

any disposition of property in a 

transaction in which gain or loss is not 

recognized in whole or in part for 

purposes of subtitle A—other than a 

transfer on the death of a partner. 

One commenter requested 

clarification that a step up in basis that 

results from the transfer of an interest 

on the death of a partner is not a 

transaction of interest. Another 

commenter requested clarification that 

the following transactions are ‘‘transfers 

on the death of a partner’’ excluded 

from the definition of a nonrecognition 

transaction under the final regulations: 

(1) any deemed transfer to what had 

been a grantor trust, including an 

intentionally defective grantor trust; and 

(2) a transfer on the death of a 

beneficiary of a trust that is a partner. 

This same commenter requested 

clarification that a ‘‘transfer on the 

death of a partner’’ is neither a 

‘‘nonrecognition transaction,’’ nor a 

‘‘recognition transaction’’ as defined in 

the proposed regulations. Section 

1.6011–18(c)(4) of the final regulations 

clarifies that transfers on the death of a 

partner are not identified as transactions 

of interest or as substantially similar 

transactions. Section 1.6011–18(b)(13) 

of the final regulations also provides 

that the term ‘‘transfer on the death of 

a partner’’ means a transfer of a 

partnership interest from a partner to 

the partner’s estate or a deemed transfer 

from a grantor trust owned by the 

partner to a trust that becomes a 

separate entity for Federal income tax 

purposes by reason of the partner’s 

death. 

One commenter recommended 

excluding distributions of partnership 

property to transferees of an interest in 

a partnership owned (or deemed owned) 

by a decedent at the time of death that 

occur during the administration of the 

decedent’s estate, or a trust created by 

the decedent. This commenter also 

recommended excluding transfers of 

partnership interests owned (or deemed 

owned) by a decedent that occur during 

the administration of the decedent’s 

estate or by a trust that was created by 

the decedent. Although not specifically 

stated in the commenter’s letter, 

presumably, both of the commenter’s 

recommendations would not be relevant 

in cases in which a section 754 election 

was made at the time of the decedent’s 

death because there would be no 

disparity between the outside basis in 

the decedent’s partnership interest and 

its share of inside basis in the 

partnership’s properties. The Treasury 

Department and the IRS agree that 

transfers of partnership interests 

resulting from the death of a partner 

should be excluded from the 

transactions identified as transactions of 

interest and thus these transfers are not 

identified as such by the final 

regulations. However, if a section 754 

election is not made for the taxable year 

that includes the death of the partner, 

subsequent transactions that generate 

positive basis adjustments, such as 

distributions of partnership property to 

the estate or transfers of partnership 

interests to beneficiaries that may 

resolve an inside-outside basis disparity 

created by a step-up to the basis of the 

decedent’s partnership interest upon 

death, will be included as transactions 

of interest, provided that the applicable 

threshold amount is met. The Treasury 

Department and the IRS appreciate that 

a section 754 election, once made, is 

irrevocable without seeking permission 

from the IRS, and that a section 754 

election at the time of a partner’s death 

may require the partnership to maintain 

a separate set of calculations of the 

transferee beneficiaries’ distributive 

shares of partnership items that reflect 

the section 743(b) adjustment. But 

making a section 754 election at the 

time of death would be the mechanism 

by which to avoid the reporting 

requirements imposed by the 

regulations (assuming the applicable 

threshold amount is met). Providing an 

exception to reporting for transactions 

that result in basis adjustments because 

a section 754 election was not made on 

the death of a partner due to potential 

administrative burdens would result in 

additional requests for reporting 

exceptions in other fact patterns in 

which a section 754 election was not 

made on an original transaction due to 

potential administrative burdens, and a 

subsequent nonrecognition transaction 

results in a basis adjustment that would 

otherwise be reportable. Including such 

exceptions in the final regulations 

would defeat the purpose of identifying 

the transactions of interest, as there may 

be circumstances in which the lack of a 

section 754 election was part of a 

strategy to generate more beneficial 

results using a transaction identified as 

a transaction of interest by the 

regulations. Thus, these final 

regulations do not exclude transactions 

in which a basis increase arises because 

a section 754 election was not made for 

a transaction that would have provided 

a basis adjustment to offset an insideoutside basis disparity. The Treasury 

Department and the IRS note that relief 

under §§ 301.9100–1 through 301.9100– 

3 may be available for section 754 

elections should a partnership fail to 

make the election in the time prescribed 

by the Code and regulations. 

IV. Threshold Amount for Reporting 

A. Amount Generally 

Under proposed § 1.6011–18(c)(3), a 

partnership related-party basis 

adjustment transaction would have 

included those transactions in which 

the total basis increases from all 

transactions described in proposed 

§ 1.6011–18(c)(1) or (2), (d)(1) or (2) 

engaged in by the same partner or 

partnership during the taxable year 

(without netting for any basis 

adjustment that results in a basis 

decrease in the same transaction or 

another transaction), reduced by the 

gain recognized, if any, on which tax 

imposed under subtitle A is required to 

be paid by any of the related parties to 

the transaction, equal or exceed $5 

million. Accordingly, a transaction of a 

partner or partnership described in 

proposed § 1.6011–18(c)(1) or (2) that 

resulted in a basis increase of less than 

$5 million during the taxable year 

would have been a transaction of 


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interest under proposed § 1.6011–18(a) 

if, in the same taxable year, the partner 

or partnership participated in another 

transaction or transactions described in 

proposed § 1.6011–18(c)(1) or (2) and, in 

the aggregate, the transactions resulted 

in a basis increase that equals or 

exceeds $5 million, without regard to 

any basis decrease resulting from the 

transactions and after reducing the 

resulting aggregate amount by the gain 

recognized, if any, on which tax 

imposed under subtitle A is required to 

be paid by any of the related parties to 

the transactions. 

Many commenters recommended 

increasing the proposed $5 million 

threshold amount, asserting that the $5 

million threshold was too low, 

particularly considering the aggregation 

requirement, and would catch common 

business transactions. Several 

commenters recommended increasing 

the proposed $5 million threshold 

amount to an amount between $10 

million and $100 million. One 

commenter recommended making the 

threshold amount $10 million for 

transactions of interest occurring after 

the applicability date of these final 

regulations and $50 million for 

transactions of interest occurring before 

that date. 

The Treasury Department and the IRS 

have determined that increasing the 

proposed $5 million threshold amount 

is appropriate to reduce the 

administrative burden imposed on 

taxpayers. The purpose of these final 

regulations is to learn more about 

partnership related-party basis 

adjustment transactions and the 

Treasury Department and the IRS are 

conscious of overburdening taxpayers in 

that pursuit. Accordingly, the final 

regulations provide that, in the case of 

related-party basis adjustment 

transactions occurring within the sixyear lookback period described in 

§ 1.6011–18(c)(3)(ii), the applicable 

threshold amount is $25 million. For 

related-party basis adjustment 

transactions occurring after the six-year 

lookback period, the final regulations 

provide an applicable threshold amount 

of $10 million. In each case, the 

applicable threshold amount is met for 

a taxable year if the sum of all relatedparty basis increases (as determined 

under Part IV.B. of this Summary of 

Comments and Explanation of 

Revisions) resulting from all 

transactions described in the final 

regulations of a participant during the 

taxable year (without netting for any 

downward basis adjustment in the same 

transaction or another transaction) 

exceeds by at least the applicable 

threshold amount the gain recognized 

from such transactions, if any, on which 

tax imposed under subtitle A is required 

to be paid by any of the related partners 

(or tax-indifferent party) who are a party 

to such transactions. If the applicable 

threshold amount is met for a taxable 

year, all transactions of the participant 

described in the final regulations for the 

taxable year are reportable as 

transactions of interest regardless of 

whether an individual transaction meets 

the applicable threshold amount. 

B. Calculation of Threshold Amount 

Commenters also recommended 

changing how the threshold amount is 

calculated. A few commenters 

recommended allowing basis increases 

to be offset by basis decreases for 

purposes of determining whether the 

threshold amount has been reached. 

Another commenter recommended 

taking basis increases into account only 

to the extent that corresponding basis 

decreases are borne by related parties. 

The same commenter recommended 

exempting transactions from the 

proposed regulations for which only a 

small portion (for example, 10 percent) 

of an overall basis decrease impacts 

parties related to those with 

corresponding basis increases, or vice 

versa. One commenter recommended 

that if its recommendation to limit 

reporting to the year of the transaction 

of interest is not adopted, that the 

threshold amount look to net taxable 

income—that is, reporting should be 

required only if the tax benefit reduced 

taxable income by the threshold 

amount. This commenter also suggested 

eliminating aggregation of basis 

increases. Another commenter 

recommended using a threshold amount 

that is not related to basis (for example, 

the book value of distributed property). 

The Treasury Department and the IRS 

agree that the calculation of the 

applicable threshold amount for 

purposes of section 734(b) TOIs should 

include only related partners’ shares of 

basis increases and not the shares of 

unrelated parties, who can negotiate 

transactions at arm’s length to protect 

their interests. The Treasury Department 

and the IRS also agree that the 

calculation of the applicable threshold 

amount for purposes of section 732(b) 

TOIs should exclude basis increases that 

correspond to basis decreases borne by 

unrelated partners (other than taxindifferent parties) as basis decreases 

borne by unrelated partners should be 

negotiated at arm’s length unless the 

unrelated partner is a tax-indifferent 

party. Accordingly, § 1.6011–18(c)(3)(iii) 

of the final regulations provide that in 

the case of a section 734(b) TOI, other 

than a substantially similar transaction 

described in § 1.6011–18(d)(1), for 

determining whether the applicable 

threshold amount is met for a taxable 

year, a basis increase is an increase to 

the adjusted basis of the partnership’s 

property under section 734(b)(1) and (c) 

only to the extent of each related 

partner’s share of the basis increase. 

Section 1.6011–18(c)(3)(iv) of the final 

regulations provides that in the case of 

a section 732(b) TOI, other than a 

substantially similar transaction 

described in § 1.6011–18(d)(1), for 

determining whether the applicable 

threshold amount is met for a taxable 

year, a basis increase is an increase to 

the basis of property distributed to one 

of the related partners under section 

732(b) or (c), but excluding the amount 

of any basis increase that corresponds to 

a decrease to the basis of property 

distributed to unrelated partners (other 

than tax-indifferent parties) under 

section 732(b) and (c) or to unrelated 

partners’ (other than tax-indifferent 

parties’) shares of a corresponding 

decrease to the basis of the partnership’s 

remaining property under section 

734(b)(2) and (c). In the case of a 

substantially similar transaction 

described in § 1.6011–18 (d)(1), for 

purposes of determining whether the 

applicable threshold amount is met for 

a taxable year, a basis increase is an 

increase to the basis of property 

distributed to one of the partners under 

section 732(b) or (c) only to the extent 

of a corresponding decrease to the basis 

of property distributed to a taxindifferent party under section 732(b) 

and (c) or to one or more tax-indifferent 

party’s shares of a corresponding 

decrease to the basis of the partnership’s 

remaining property under section 

734(b)(2) and (c). For purposes of all of 

these rules, a partner’s share of a basis 

decrease is determined immediately 

after the distribution under rules similar 

to the rules of § 1.197–2(h)(12)(iv)(D). 

The Treasury Department and the IRS 

do not agree, however, that additional 

changes to the calculation of the 

applicable threshold amount, such as 

eliminating aggregation, calculating the 

applicable threshold amount based on 

increases to taxable income, or using an 

economic threshold that is based on 

book amounts, are appropriate in light 

of the modifications made. If 

aggregation were eliminated from the 

calculation of the applicable threshold 

amount, taxpayers would be 

incentivized to separate transactions 

described in the final regulations into 

multiple transactions that result in 

positive basis adjustments in an amount 

below the applicable threshold amount 

to avoid reporting obligations. 


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Incentivizing such behavior would 

defeat the purpose of the final 

regulations, which is to gather 

information on partnership related-party 

basis adjustment transactions. 

Additionally, calculating the applicable 

threshold amount based on taxable 

income or book amounts would 

introduce unnecessary complexity for 

both taxpayers and the IRS in 

identifying the transactions described in 

the final regulations. The calculation of 

the applicable threshold amount in the 

final regulations represents an 

appropriate methodology for 

quantifying the magnitude of 

partnership related-party basis 

adjustment transactions a taxpayer 

engages in for a taxable year. As 

described in Part IV.A of this Summary 

of Comments and Explanation of 

Revisions, the increases to the threshold 

amount made by these final regulations 

should also address concerns that the 

applicable threshold amount is overly 

inclusive. 

Finally, one commenter requested 

clarification that substantially similar 

transactions are subject to the threshold 

amount. The Treasury Department and 

the IRS clarify that a transaction cannot 

be a substantially similar transaction if 

the applicable threshold amount is not 

met. As described in part VI of this 

Summary of Comments and Explanation 

of Revisions, transactions would be 

‘‘substantially similar’’ transactions if 

they are (1) expected to obtain the same 

or similar types of tax consequences as 

the transactions described in the final 

regulations, (2) factually similar or 

based on the same or similar tax 

strategy, and (3) the applicable 

threshold amount is met. 

V. Relatedness Standard 

Proposed § 1.6011–18(b)(8) would 

have defined ‘‘related’’ as having a 

relationship described in section 267(b) 

(without regard to section 267(c)(3)) or 

section 707(b)(1). Proposed § 1.6011– 

18(b)(9) would have defined ‘‘related 

partners’’ as partners of a partnership 

that are related in the following 

manner—(i) in a transaction described 

in proposed § 1.6011–18(c)(1), the 

partnership has two or more direct or 

indirect partners that are related to each 

other within the meaning of proposed 

§ 1.6011–18(b)(8), or (ii) in a transaction 

described in proposed § 1.6011–18(c)(2), 

the transferor of a partnership interest is 

related to the transferee, or the 

transferee is related to one or more of 

the partners in the partnership, within 

the meaning of proposed § 1.6011– 

18(b)(8). Under the proposed 

regulations, this relatedness 

requirement would have been met if the 

requisite relatedness exists either 

immediately before or immediately after 

a partnership related-party basis 

adjustment transaction described in 

proposed § 1.6011–18(c)(1) or (2). 

Several commenters recommended 

changes to the relatedness requirement, 

stating that it was overbroad and 

difficult to comply with as partnerships 

and partners may not be able to identify 

their related parties. One commenter 

recommended importing concepts 

found in section 1563(a)(2) of the Code 

(related to brother-sister controlled 

groups of corporations) that would limit 

the definition of related partnerships by 

taking into account common ownership 

of capital or profits interests in the 

partnerships only to the extent that such 

ownership is identical with respect to 

each partnership. 

In the case of transactions of interest 

involving section 734(b) or section 

732(b) or (d), one commenter 

recommended requiring related partners 

to own 80 percent or more of the capital 

or profits interests of the partnership. 

Similarly, another commenter 

recommended that for all purposes of 

the final regulations, reporting should 

be required only if related parties own 

80 percent or more of the capital or 

profits of a participating partnership. 

This commenter also recommended that 

the standard for relatedness be modified 

by substituting ‘‘80 percent’’ for ‘‘50 

percent’’ in the relevant relationships 

defined within sections 267(b) or 

section 707(b)(1). 

The Treasury Department and the IRS 

appreciate that the standard of 

relatedness used in the proposed 

regulations, combined with the scope of 

the transactions identified as 

transactions of interest, the proposed $5 

million threshold amount, and the 

proposed definition of participation 

could result in administrative burdens 

on partnerships and their partners. The 

final regulations address these burdens 

by limiting the scope of the transactions 

identified, increasing the applicable 

threshold amounts, and limiting the 

application of the subsequent 

realization of tax benefit rule as 

described in Part VII.A. of this Summary 

of Comments and Explanation of 

Revisions. For example, in response to 

comments requesting that the standard 

of relatedness be narrowed, in the case 

of a section 734(b), 732(b) or 732(d) TOI, 

the final regulations provide that only 

directly related partners (and not also 

indirectly related partners) are 

considered in determining whether 

partners are related within the meaning 

of § 1.6011–18(b)(8) of the final 

regulation. 

The final regulations do not adopt the 

additional changes to the standard of 

relatedness recommended by 

commenters because the Treasury 

Department and the IRS are concerned 

that counting only identical ownership 

as between related partnerships, or 

requiring related partners to own 80 

percent or more of the capital or profits 

interests in a partnership, would more 

easily permit partnership structures 

with only marginally different 

ownership, including through the use of 

accommodation parties, to avoid such 

higher ownership thresholds without 

substantially affecting the partners’ 

economics. Likewise, the Treasury 

Department and the IRS are concerned 

that increasing the relatedness standard 

from 50 percent to 80 percent could 

allow taxpayers to structure their affairs 

to stay below an 80-percent-relatedness 

standard, while simultaneously 

engaging in abusive partnership relatedparty basis adjustment transactions. 

Adding an ownership threshold or 

increasing the relatedness standard 

would frustrate the purpose of 

identifying the transactions described in 

the proposed regulations as transactions 

of interest. Accordingly, the 

commenters’ recommendations are not 

adopted in the final regulations. 

A commenter recommended 

excluding transactions between family 

members from those defined as 

transactions of interest and focusing 

instead on transactions involving 

controlled corporations described in 

section 267(f). The commenter noted 

that if relatedness is determined 

immediately before or after a 

transaction, parties undergoing divorce 

may be subject to these rules even 

though they have competing interests 

and will not be related after the divorce. 

Another commenter recommended 

excluding brothers and sisters from a 

person’s family for purposes of 

determining relatedness, stating that, in 

the commenter’s experience, siblings 

often have a contentious business 

relationship and are less likely to engage 

in transactions that confer large, 

gratuitous economic or tax benefits to 

one another. The Treasury Department 

and the IRS do not agree that familial 

relationships, including sibling 

relationships, should be excluded from 

the definition of relatedness. Family 

members, including siblings, often work 

in concert in ways that arm’s-length 

parties do not. For those reasons, 

Congress included these familial 

relationships as part of the limitation 

rules in sections 267 and 707(b). 

Additionally, section 1041 of the Code 

is intended to address transfers of 


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property between spouses incident to 

divorce. For these reasons, the final 

regulations retain familial relationships, 

including sibling relationships, in the 

definition of relatedness. 

VI. Substantially Similar Transactions 

Section 1.6011–4(b)(6) defines a 

‘‘transaction of interest’’ as a transaction 

that is the same as or substantially 

similar to one of the types of 

transactions that the IRS has identified 

by notice, regulation, or other form of 

published guidance as a transaction of 

interest. For purposes of proposed 

§ 1.6011–18, transactions would be 

‘‘substantially similar’’ transactions if 

the transactions are substantially similar 

within the meaning of § 1.6011– 

4(c)(4)—that is, if they are expected to 

obtain the same or similar types of tax 

consequences and are either factually 

similar or based on the same or similar 

tax strategy. Proposed § 1.6011–18(a) 

would have provided that substantially 

similar transactions include, but are not 

limited to, the transactions described in 

proposed § 1.6011–18(d). 

Some commenters recommended 

clarifying or narrowing the definition of 

‘‘substantially similar’’ transactions 

generally. Several commenters noted 

that the broad definition of 

‘‘substantially similar transactions’’ in 

§ 1.6011–4 increases uncertainty and 

compliance costs. Suggestions to amend 

§ 1.6011–4, including that provision’s 

definition of a ‘‘substantially similar’’ 

transaction, are outside the scope of 

these final regulations. As a result, the 

commenters’ suggestions are not 

adopted in the final regulations. 

A. Tax-Indifferent Parties 

Under proposed § 1.6011–18(d)(1), a 

transaction would have been 

substantially similar to a transaction 

described in proposed § 1.6011–18(c) if 

the transaction is a basis adjustment 

transaction described in proposed 

§ 1.6011–18(c)(1) or (2), except that it 

does not involve related partners and 

one or more partners of the partnership 

is a tax-indifferent party. Under 

proposed § 1.6011–18(b)(11), a taxindifferent party would have meant a 

person that is either not liable for 

Federal income tax because of its taxexempt or, in certain cases, foreign 

status, or to which gain from a 

transaction described in proposed 

§ 1.6011–18(c) would not result in 

Federal income tax liability for the 

person’s taxable year within which such 

gain is recognized (for example, because 

the taxpayer has a net operating loss 

carryforward or capital loss 

carryforward). 

Two commenters recommended 

eliminating transactions involving taxindifferent parties from those identified 

as transactions of interest. Many 

commenters noted that partners and 

partnerships may be unaware that a 

person engaging in a transaction 

identified by the proposed regulations is 

a tax-indifferent party. Some 

commenters requested clarification to 

the definition of tax-indifferent party, 

such as whether it includes direct or 

indirect partners that are exempt from 

Federal income tax under section 115 of 

the Code (relating to the income of 

State, territorial, or local governments), 

entities treated as partnerships or S 

corporations for Federal tax purposes, or 

a person that, due to tax attributes or for 

other reasons, is subject to tax on only 

part of its income. One commenter 

requested confirmation that the 

definition of a tax-indifferent party does 

not include a party with a capital loss 

carryover. The commenter raised that a 

capital loss carryover may be unrelated 

to a partner’s partnership interest and 

unknown by other partners, particularly 

if the partner is unrelated. 

One commenter recommended 

limiting the rule to situations in which 

the tax-indifferent party knows or has 

reason to know of the tax benefits 

arising in connection with its 

participation in a basis-adjustment 

transaction and that the other partners 

that are party to the transaction know of 

the partner’s tax-indifferent status. One 

commenter recommended an exception 

for taxpayers who do not have 

knowledge or reason to know that its 

transaction is reportable because a 

person that is a party to the transaction 

is tax-indifferent. Another commenter 

recommended modifying the taxindifferent party rule to apply only to 

situations in which the taxpayer 

knowingly participates in the 

transaction to which the tax-indifferent 

party facilitates a basis step-up. 

Eliminating the tax-indifferent party 

rule would frustrate the purpose of 

identifying substantially similar 

transactions to the identified 

transactions of interest that use taxindifferent parties instead of related 

parties to achieve the same economic or 

tax results. Accordingly, the Treasury 

Department and the IRS decline to 

eliminate the tax-indifferent party rule 

entirely in the final regulations. 

However, in response to these 

comments, the Treasury Department 

and the IRS have determined that 

certain changes to the scope of 

transactions of interest involving taxindifferent parties are appropriate. 

Accordingly, the final regulations 

include a knowledge element in the 

definition of a tax-indifferent party. 

Section 1.6011–18(b)(12) of the final 

regulations provides that a taxindifferent party means a person that is 

either not liable for Federal income tax 

by reason of its tax-exempt or, in certain 

cases, foreign status, or to which any 

gain, or portion of any gain, that would 

have resulted from a section 732(b) TOI 

or a section 734(b) TOI if the property 

subject to a basis decrease in such 

transaction were sold immediately after 

such transaction, would not result in 

Federal income tax liability for the 

person’s taxable year within which such 

gain would have been recognized, and 

whose status as a tax-indifferent party is 

known or should be known to any other 

person that participates in the 

transaction or to a partner in a 

partnership that participates in such a 

transaction. Thus, a tax-indifferent party 

would include a person that is partially 

taxable, for example, due to tax 

attributes, to the extent that the person’s 

status as a tax-indifferent party is 

known or should be known by any other 

person participating in the transaction 

or to a partner in a partnership that 

participates in such a transaction. 

Because partnerships or S corporations 

are generally not liable for tax, and 

because the tax status of their partners 

or shareholders could be diverse, the 

final regulations also provide that 

partnerships or S corporations are not 

tax-indifferent parties except in cases in 

which a principal purpose of the use of 

the partnership or S corporation is to 

avoid tax-indifferent party status. 

Additionally, the final regulations 

limit the scope of a substantially similar 

transaction with a tax-indifferent party 

under § 1.6011–18(d)(1) by limiting the 

calculation of the applicable threshold 

amount to basis increases that 

correspond to a basis decrease to the 

tax-indifferent party for sections 732 

and 734 TOIs. See Part IV.B. of this 

Summary of Comments and Explanation 

of Revisions. These modifications are 

intended to address concerns that the 

tax-indifferent party rules in the 

proposed regulations were overbroad. 

The final regulations also clarify that 

a transaction with a tax-indifferent party 

includes a transaction in which the taxindifferent party facilities the increase 

in the basis of partnership property in 

a section 732 TOI by having a share of 

a corresponding decrease to the basis of 

partnership property. 

B. Recognition Transactions 

Proposed § 1.6011–18(d)(2) would 

have defined as a substantially similar 

transaction a transaction in which a 

partner transfers the partner’s 

partnership interest in a recognition 


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2970 Federal Register / Vol. 90, No. 8 / Tuesday, January 14, 2025 / Rules and Regulations 

transaction to a related transferee or to 

a person related to one or more existing 

partners, and the proposed $5 million 

threshold amount was met. Proposed 

§ 1.6011–18(b)(6) would have defined a 

‘‘recognition transaction’’ as a 

transaction other than a nonrecognition 

transaction. 

One commenter requested 

clarification that proposed § 1.6011– 

18(d)(2) applies only to transfers 

between related parties, meaning the 

transferor and transferee must be 

related. The Treasury Department and 

the IRS agree with this comment and 

have made clarifying changes to confirm 

that the rule in § 1.6011–18(d)(2) does 

not apply to transfers of partnership 

interests between persons that are not 

related. 

VII. Participation in a Transaction of 

Interest Identified by the Proposed 

Regulations 

A. Subsequent Realization of Tax 

Benefit Rule 

Under proposed § 1.6011–18(e)(2)–(4), 

a participating partnership, 

participating partner, or related 

subsequent transferee would have 

participated in a transaction of interest 

in any taxable year in which it 

participates in a transaction described 

in proposed § 1.6011–18(c). 

Additionally, under proposed § 1.6011– 

18(e)(5), a participating partnership, 

participating partner, or related 

subsequent transferee would have 

participated in a transaction of interest 

in any taxable year in which its tax 

return reflected the tax consequences of 

a basis increase resulting from a 

transaction described in proposed 

§ 1.6011–18(c) (subsequent realization 

of tax benefit rule). Therefore, under the 

proposed regulations, as a result of the 

subsequent realization of tax benefit 

rule, a transaction described in 

proposed § 1.6011–18(c) that occurred 

many years ago could require reporting 

if a taxpayer’s tax return in an open tax 

year reflected the tax consequences 

(such as cost-recovery deductions) 

arising from the transaction of interest. 

Several commenters recommended 

eliminating the retroactive effect of the 

subsequent realization of tax benefit 

rule. These commenters stated that 

complying with the rule would be 

burdensome given that it could require 

taxpayers and their advisors to 

reconstruct transactions and their 

resulting tax consequences from many 

years ago. Commenters asserted that, in 

many cases, taxpayers and their 

advisors will not have sufficient 

information to comply with the rule. 

Several commenters recommended 

that the proposed regulations apply 

prospectively to transactions that occur 

in taxable years beginning on or after 

the date the final regulations are 

adopted, whereas one commenter 

recommended applying the proposed 

regulations solely to transactions 

effected on or after January 1, 2023. One 

commenter recommended applying the 

subsequent realization of tax benefit 

rule only to partnership related-party 

basis adjustment transactions that occur 

within partnership tax years that remain 

open under the period of limitations set 

forth in section 6235 of the Code. 

Section 6235 provides rules on the 

period of limitations for making 

adjustments with respect to 

partnerships subject to the Centralized 

Partnership Audit Regime under the 

Bipartisan Budget Act of 2015 (BBA 

partnerships). Under section 6235(a)(1), 

the time for the IRS to make an 

adjustment for a taxable year of a BBA 

partnership generally is the later of the 

date which is three years after the latest 

of (1) the date on which the partnership 

return for the taxable year was filed, (2) 

the return due date for the taxable year, 

or (3) the date on which the partnership 

filed an administrative adjustment 

request under section 6227 of the Code 

with respect to the taxable year. In the 

case of a BBA partnership that makes a 

substantial omission of gross income 

within the meaning of section 

6501(e)(1), section 6235(c)(2) provides 

that the period of limitations on making 

adjustments is six years instead of three 

years. 

The Treasury Department and the IRS 

do not agree with eliminating all 

reporting that would occur under the 

subsequent realization of tax benefit 

rule as this would defeat the purpose of 

providing the IRS with information 

regarding transactions with tax 

consequences occurring over more than 

one taxable year. However, the Treasury 

Department and the IRS agree that it is 

appropriate to limit the retroactive 

information effect of the subsequent 

realization of tax benefit rule because of 

administrative concerns with 

compliance for transactions that would 

meet the elements of § 1.6011–18(c) and 

(d) except that they occurred many 

years ago. 

In determining the appropriate 

limitation for the subsequent realization 

of tax benefit rule, limiting the look 

back period to the prior six years as 

recommended by one commenter allows 

the IRS to preserve its ability to assess 

tax in cases in which the statute of 

limitations for assessment of tax is six 

years pursuant to section 6501(e) or 

section 6235(c)(2). In addition, a sixyear lookback period aligns with the 

requirement under § 301.6112–1(b)(2) 

that material advisors of transactions of 

interests maintain lists of advisees, but 

not if the person entered into the 

transaction more than six years from the 

date the transaction was identified as a 

transaction of interest under published 

guidance. Accordingly, the final 

regulations adopt a six-year lookback 

period for required disclosures. Under 

the final regulations at § 1.6011–18(f)(2), 

for a taxable year described in § 1.6011– 

4(e)(2)(i), a participant must provide the 

information described in the final 

regulations only if the transaction of 

interest occurred within the six-year 

lookback period. Section 1.6011– 

18(b)(11) of the final regulations 

provides that the six-year lookback 

period means the seventy-two months 

immediately preceding the first month 

of the taxpayer’s most recent taxable 

year that began before January 14, 2025. 

The final regulations include examples 

demonstrating the six-year lookback 

period rule. 

B. Limiting the Definition of 

Participation 

Several commenters recommended 

requiring reporting only in the taxable 

year the transaction of interest occurs 

and eliminating the subsequent 

realization of tax benefit rule. These 

commenters asserted that reporting only 

in the year in which the transaction of 

interest first arises would reduce 

compliance burdens and costs for 

taxpayers and limit the potential for 

missed reporting. One commenter 

suggested adopting a one-time 

disclosure mechanism like that adopted 

in Form 1065, Schedule B, questions 11 

and 12 for the ‘‘drop and swap’’ or 

‘‘swap and drop’’ transactions to which 

section 1031 of the Code applies. 

Another commenter recommended 

requiring reporting only at the 

partnership level to avoid duplicative 

reporting. Reporting by all participants 

in any taxable year in which the 

participant’s tax return reflects the tax 

consequences of a basis increase 

resulting from a transaction of interest is 

the most appropriate for tax compliance 

and administration. Accordingly, the 

commenters’ recommendations are not 

adopted in the final regulations. 

Special Analyses 

I. Paperwork Reduction Act 

The collection of information 

contained in these final regulations is 

reflected in the collection of information 

for Form 8886 and Form 8918, Material 

Advisor Disclosure Statement, that have 

been reviewed and approved by the 


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3See, 13 CFR 121.201. 

Office of Management and Budget 

(OMB) in accordance with the 

Paperwork Reduction Act (44 U.S.C. 

3507(c)) under control numbers 1545– 

1800 and 1545–0865. 

To the extent there is a change in 

burden as a result of these final 

regulations, the change in burden will 

be reflected in the updated burden 

estimates for the Forms 8886 and 8918. 

The requirement to maintain records to 

substantiate information on Forms 8886 

and 8918 is already contained in the 

burden associated with the control 

number for the forms and remains 

unchanged. 

An agency may not conduct or 

sponsor, and a person is not required to 

respond to, a collection of information 

unless the collection of information 

displays a valid OMB control number. 

II. Regulatory Flexibility Act 

The Regulatory Flexibility Act (RFA) 

(5 U.S.C. chapter 6) requires agencies to 

‘‘prepare and make available for public 

comment an initial regulatory flexibility 

analysis,’’ which will ‘‘describe the 

impact of the rule on small entities.’’ 

Section 605(b) of the RFA allows an 

agency to certify a rule if the rulemaking 

is not expected to have a significant 

economic impact on a substantial 

number of small entities. 

The Secretary of the Treasury hereby 

certifies that these final regulations will 

not have a significant economic impact 

on a substantial number of small entities 

pursuant to the RFA. This certification 

is based on IRS data that estimates the 

percentage of partnerships that would 

have been required to file a disclosure 

statement under the proposed 

regulations and those that may be 

required to file a disclosure statement 

under the final regulations. 

The IRS’s Research, Applied 

Analytics, and Statistics division 

(RAAS) provided data that indicated the 

percentage of partnerships with gross 

receipts or sales of $25 million or less 

that might have been subject to the 

disclosure obligations under the 

proposed regulations because of a basis 

adjustment under section 743(b) of more 

than $5 million during the taxable year. 

In addition, RAAS provided data that 

indicated the percentage of partnerships 

with gross receipts or sales of $25 

million or more that might have been 

subject to the disclosure obligations 

under the proposed regulations because 

of a basis adjustment under section 

743(b) of more than $5 million during 

the taxable year. The data suggested that 

of all partnerships with related parties 

and a basis adjustment under section 

743(b) of more than $5 million during 

the taxable year, approximately twothirds of the partnerships would have 

gross receipts or sales of $25 million or 

less and approximately one-third would 

have gross receipts or sales of $25 

million or more. The Treasury 

Department and the IRS determined that 

the data did not indicate that the 

proposed regulations would have a 

significant economic impact on a 

substantial number of small entities 

because not all partnerships with gross 

receipts or sales of $25 million or less 

are considered small businesses,3 and 

the data did not provide information on 

whether the partnerships with gross 

receipts or sale of $25 million or less 

were part of larger enterprises. 

As discussed in Part II of the 

Summary of Comments and Explanation 

of Revisions, several commenters stated 

that the scope of the proposed 

regulations would be overbroad and the 

number of entities that would be subject 

to disclosure was underestimated. In 

addition, commenters asserted that 

taxpayers would be subject to 

substantial costs for complying with the 

proposed regulations because 

compliance required reviewing 

transactions from prior taxable years to 

determine whether a continuing tax 

benefit was attributable to a transaction 

identified as a transaction of interest 

under the proposed regulations. These 

comments are addressed in Parts II and 

VII of the Summary of Comments and 

Explanation of Revisions. 

One commenter asserted that the 

Treasury Department and the IRS 

underestimated the likely cost of 

complying with the proposed 

regulations. Specifically, the commenter 

asserted that the likely wage of tax 

preparers and costs of due diligence, as 

well as the number of parties affected by 

each transaction of interest were 

underestimated. 

As indicated in the Summary of 

Comments and Explanation of 

Revisions, the final regulations include 

changes that should significantly limit 

the total number of entities and more 

specifically, small businesses, subject to 

the disclosure obligations. Most 

significantly, the applicable threshold 

amount is increased from $5 million to 

$10 million; the period for reporting 

under § 1.6011–4(e)(2)(i) is limited to a 

six-year lookback period and the 

applicable threshold amount for the sixyear lookback period is $25 million; in 

the case of a section 734(b) TOI, the 

applicable threshold amount is 

determined by generally only taking 

into account only the amount of the 

basis increase shared by related 

partners; in the case of a section 732(b) 

TOI, the applicable threshold amount is 

determined by generally only taking 

into account only the amount of the 

basis increase that corresponds to a 

basis decrease shared by the related 

partners. 

In addition, more recent data from the 

IRS indicates that, in the case of 

partnerships with gross assets of less 

than $25 million that reported basis 

adjustments under section 734(b) or 

section 743(b) for the taxable year, the 

average basis adjustment was less than 

the applicable threshold amount of $10 

million or more in the final regulations. 

Thus, the Treasury Department and the 

IRS anticipate that many partnerships 

with gross assets of less than $25 

million should not be subject to the 

disclosure obligations under the final 

regulations. Further, the data indicates 

that partnerships with gross assets of 

more than $25 million that reported 

basis adjustments under section 734(b) 

or section 743(b) for the taxable year 

that met the applicable threshold 

amount of $10 million or more in the 

final regulations represent less than one 

percent of all partnerships that filed tax 

returns for the taxable year. 

Accordingly, as a result of the changes 

made to the final regulations in 

response to comments received on the 

proposed regulations, the disclosure 

obligations in the final regulations 

should affect a low percentage of 

partnerships and most of those 

partnerships will be partnerships with 

less than $25 million of gross assets. 

The final regulations should not have 

a significant economic impact on small 

entities subject to the reporting 

requirements of the final regulations 

because the final regulations merely 

implement sections 6011, 6111 and 

6112 and § 1.6011–4 by specifying the 

manner in which and the time at which 

a transaction identified as a transaction 

of interest in the final regulations must 

be reported. Accordingly, because the 

final regulations will be limited in scope 

to time and manner of information 

reporting, their economic impact is 

expected to be minimal. The Treasury 

Department and the IRS expect that the 

reporting burden is low because the 

information sought is necessary for 

regular annual return preparation and 

ordinary recordkeeping. The estimated 

burden for any taxpayer required to file 

Form 8886 is approximately 10 hours, 

16 minutes for recordkeeping, 4 hours, 

50 minutes for learning about the law or 

the form, and 6 hours, 25 minutes for 

preparing, copying, assembling, and 

sending the form to the IRS. 

RAAS estimated that the appropriate 

wage rate for complying with the 

proposed regulations is $102.00 (2022 


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dollars) per hour. Thus, it was estimated 

that persons required to comply with 

the proposed regulations would have 

incurred costs totaling approximately 

$2,194.70 per filing. One commenter 

indicated that this per hour dollar 

amount is too small and that a better 

estimate is approximately $177.29 per 

hour or approximately $3,814.69 per 

filing (subject to the taxpayer potentially 

seeking specialists with a higher hourly 

fee to comply with the proposed 

regulations). Either of these amounts is 

small in comparison to an aggregate 

basis increase of $10 million or more as 

the result of a transaction identified as 

a transaction of interest under the final 

regulations. Thus, the relatively small 

cost to comply with the final regulations 

will not pose any significant economic 

impact to any small entities that would 

be subject to the final regulations. 

For the reasons stated, a regulatory 

flexibility analysis under the RFA is not 

required. Pursuant to section 7805(f) of 

the Code, the proposed rule preceding 

this rulemaking was submitted to the 

Chief Counsel for the Office of 

Advocacy of the Small Business 

Administration for comment on its 

impact on small business, and no 

comments were received. 

III. Unfunded Mandates Reform Act 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 requires 

that agencies assess anticipated costs 

and benefits and take certain other 

actions before issuing a final rule that 

includes any Federal mandate that may 

result in expenditures in any one year 

by a State, local, or Tribal government, 

in the aggregate, or by the private sector, 

of $100 million in 1995 dollars, updated 

annually for inflation. This rule does 

not include any Federal mandate that 

may result in expenditures by State, 

local, or Tribal governments, or by the 

private sector in excess of that 

threshold. 

IV. Executive Order 13132: Federalism 

Executive Order 13132 (Federalism) 

prohibits an agency from publishing any 

rule that has federalism implications if 

the rule either imposes substantial, 

direct compliance costs on State and 

local governments, and is not required 

by statute, or preempts state law, unless 

the agency meets the consultation and 

funding requirements of section 6 of the 

Executive order. These final regulations 

do not have federalism implications and 

do not impose substantial direct 

compliance costs on State and local 

governments or preempt state law 

within the meaning of the Executive 

order. 

V. Regulatory Planning and Review 

Pursuant to the Memorandum of 

Agreement, Review of Treasury 

Regulations under Executive Order 

12866 (June 9, 2023), tax regulatory 

actions issued by the IRS are not subject 

to the requirements of section 6 of 

Executive Order 12866, as amended. 

Therefore, a regulatory impact 

assessment is not required. 

VI. Congressional Review Act 

Pursuant to the Congressional Review 

Act (5 U.S.C. 801 et seq.), the Office of 

Information and Regulatory Affairs has 

designated this rule as not a ‘‘major 

rule,’’ as defined by 5 U.S.C. 804(2). 

Statement of Availability of IRS 

Documents 

Guidance cited in this preamble is 

published in the Internal Revenue 

Bulletin and is available from the 

Superintendent of Documents, U.S. 

Government Publishing Office, 

Washington, DC 20402, or by visiting 

the IRS website at https://www.irs.gov. 

Drafting Information 

The authors of these regulations are 

Elizabeth Zanet and Cameron 

Williamson, Office of the Associate 

Chief Counsel (Passthroughs and 

Special Industries). However, other 

personnel from the Treasury 

Department and the IRS participated in 

their development. 

List of Subjects in 26 CFR Part 1 

Income taxes, Reporting and 

recordkeeping requirements. 

Proposed Amendments to the 

Regulations 

Accordingly, the Treasury Department 

and the IRS propose to amend 26 CFR 

part 1 as follows: 

PART 1—INCOME TAXES 

■ Paragraph 1. The authority citation 

for part 1 is amended by adding an entry 

for § 1.6011–18 in numerical order to 

read in part as follows: 

Authority: 26 U.S.C. 7805 * * * 

* * * * * 

Section 1.6011–18 also issued under 26 

U.S.C. 6001 and 26 U.S.C. 6011. 

* * * * * 

■ Par. 2. Section 1.6011–18 is added to 

read as follows: 

§ 1.6011–18 Certain partnership relatedparty basis adjustment transactions as 

transactions of interest. 

(a) Identification as transaction of 

interest. Transactions that are the same 

as or substantially similar (within the 

meaning of § 1.6011–4(c)(4)) to the 

transactions described in paragraph (c) 

of this section are identified as 

transactions of interest for purposes of 

§ 1.6011–4(b)(6). Transactions that are 

substantially similar (within the 

meaning of § 1.6011–4(c)(4)) to the 

transactions described in paragraph (c) 

of this section include, but are not 

limited to, transactions described in 

paragraph (d) of this section. 

(b) Definitions. The following 

definitions apply for purposes of this 

section: 

(1) Code means the Internal Revenue 

Code. 

(2) Nonrecognition transaction means 

a nonrecognition transaction within the 

meaning of section 7701(a)(45) of the 

Code. 

(3) Participating partner means— 

(i) Except as provided in paragraph 

(b)(3)(ii), (iii), or (iv) of this section, any 

partner that directly receives a 

distribution of property from, or an 

interest in, a participating partnership, 

or directly transfers an interest in a 

participating partnership, in a 

transaction described in paragraph (c) or 

(d) of this section, including a person 

that becomes or ceases to be a partner 

as a result of such transaction. 

(ii) In the case of a participating 

partnership interest held by an entity 

that is disregarded as separate from its 

owner within the meaning of 

§ 301.7701–2(c)(2)(i) of this chapter, 

participating partner means the owner 

of the disregarded entity for Federal 

income tax purposes. 

(iii) In the case of a participating 

partnership interest held by a trust for 

which the grantor or another person is 

treated as the owner of the trust that 

holds the participating partnership 

interest as provided in section 671 of 

the Code, participating partner means 

the grantor or other person designated 

under sections 671 through 679 of the 

Code as the owner of the trust that holds 

the participating partnership interest. 

(iv) In the case of a publicly traded 

partnership within the meaning of 

section 7704 of the Code, participating 

partner means a partner of the publicly 

traded partnership but only to the extent 

that the partner engages in a private 

transfer (as described in § 1.7704–1(e)), 

redemption or repurchase agreement (as 

described in § 1.7704–1(f)), or private 

placement (as described in § 1.7704– 

1(h)) of a partnership interest with a 

related partner and the transaction is 

not otherwise excluded as a transaction 

described in paragraph (c) or (d) of this 

section. 

(4) Participating partnership means 

any partnership— 

(i) That makes a distribution of 

property to a participating partner in a 


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transaction described in paragraph (c)(1) 

or (d)(1) of this section, or 

(ii) A partnership interest in which is 

transferred by a participating partner in 

a transaction described in paragraph 

(c)(2) or (d)(2) of this section. 

(5) Participating partnership interest 

means any partnership interest in a 

participating partnership. 

(6) Recognition transaction means a 

transaction other than a nonrecognition 

transaction within the meaning of 

paragraph (b)(2) of this section. 

(7) Recoverable property means 

property of a character subject to an 

allowance for depreciation, 

amortization, or depletion under 

subtitle A of the Code (subtitle A). 

(8) Related means having a 

relationship described in section 267(b) 

of the Code (without regard to section 

267(c)(3)) or section 707(b)(1) of the 

Code. 

(9) Related partners means: 

(i) In the case of a transaction 

described in paragraph (c)(1) of this 

section, two or more direct partners of 

a partnership that are related 

immediately before or immediately after 

a transaction described in paragraph 

(c)(1) of this section. 

(ii) In the case of a transaction 

described in paragraph (c)(2) or (d)(2) of 

this section, a transferor and transferee 

of a partnership interest that are related 

to each other immediately before or 

immediately after a transaction 

described in paragraph (c)(2) of this 

section. 

(10) Related subsequent transferee 

means any person that is related to a 

participating partner and directly 

received in a nonrecognition transaction 

a transfer (including a distribution) of 

property that was subject to an increase 

in basis from a transaction described in 

paragraph (c) or (d) of this section. 

(11) Six-year lookback period means 

the seventy-two months immediately 

preceding the first month of the 

taxpayer’s most recent taxable year that 

began before January 14, 2025. 

(12) Tax-indifferent party means a 

person that is either not liable for 

Federal income tax by reason of the 

person’s tax-exempt or, in certain cases, 

foreign status, or to which any gain, or 

portion of any gain, that would have 

resulted from a transaction described in 

paragraph (d)(1) of this section if the 

property subject to a basis decrease in 

such transaction were sold immediately 

after such transaction would not result 

in Federal income tax liability for the 

person’s taxable year within which such 

gain would have been recognized, and 

whose status as a tax-indifferent party is 

known or should be known to any other 

person that participates in a transaction 

described in paragraph (d)(1) of this 

section or to a partner in a partnership 

that participates in such a transaction. A 

tax-indifferent party does not include a 

partnership or S corporation except in a 

case in which a principal purpose of the 

use of the partnership or S corporation 

is to avoid tax-indifferent party status. 

(13) Transfer on the death of a partner 

means a transfer of a partnership 

interest from a partner to the partner’s 

estate or a deemed transfer from a 

grantor trust owned by the partner to a 

trust that becomes a separate entity for 

Federal income tax purposes by reason 

of the partner’s death. 

(c) Transaction description. A 

transaction is described in this 

paragraph (c) if the factual elements of 

the transaction described in paragraph 

(c)(1)(i) through (iii) or (c)(2) of this 

section are met. 

(1) Distributions by a partnership. A 

partnership with two or more related 

partners engages in any of the 

transactions described in paragraphs 

(c)(1)(i) through (iii) of this section as 

follows: 

(i) The partnership distributes 

property to one of the related partners 

in a current or liquidating distribution, 

the partnership increases the basis of 

one or more of its remaining properties 

under section 734(b) and (c) of the Code, 

and the applicable threshold described 

in paragraph (c)(3) of this section is met. 

(ii) The partnership distributes 

property to one of the related partners 

in liquidation of that person’s 

partnership interest (or in complete 

liquidation of the partnership), the basis 

of one or more of those distributed 

properties is increased under section 

732(b) and (c) of the Code, and the 

applicable threshold described in 

paragraph (c)(3) of this section is met. 

(iii) The partnership distributes 

property to one of the related partners, 

the basis of one or more of those 

distributed properties is increased 

under section 732(d) of the Code, the 

distributee acquired all or a part of its 

interest in the partnership in a 

transaction that would have been a 

transaction described in paragraph (c)(2) 

of this section if the partnership had a 

section 754 election in effect for the year 

of transfer, and the applicable threshold 

described in paragraph (c)(3) of this 

section is met. 

(2) Transfers of a partnership 

interest—(i) In general. Except as 

otherwise provided in paragraph 

(c)(2)(ii) or (c)(4) of this section, a 

partner transfers all or a portion of a 

partnership interest to a related partner 

in a nonrecognition transaction, the 

basis of one or more partnership 

properties is increased under section 

743(b)(1) and (c) of the Code, and the 

applicable threshold described in 

paragraph (c)(3) of this section is met. 

(ii) Subsequent nonrecognition 

transfers—(A) In general. If a partner 

receives an interest in a partnership 

from a person in a recognition 

transaction (first transfer) and the basis 

of one or more partnership properties is 

increased under section 743(b)(1) and 

(c) of the Code, and subsequently the 

partner (transferor) transfers the 

partnership interest to a person related 

to the transferor (transferee) in a 

transaction described in paragraph 

(c)(2)(i) of this section (subsequent 

transfer), the subsequent transfer is a 

transaction described in paragraph 

(c)(2)(i) of this section only to the 

extent, if any, that the transferee’s basis 

adjustment under section 743(b)(1) and 

(c) resulting from the subsequent 

transfer exceeds the amount of the 

transferor’s remaining basis adjustment 

described in paragraph (c)(2)(ii)(B) of 

this section that is attributable to the 

transferred partnership interest (excess 

amount), and the applicable threshold 

described in paragraph (c)(3) of this 

section is met. Only the excess amount 

is counted towards the applicable 

threshold described in paragraph (c)(3) 

of this section. 

(B) Transferor’s remaining basis 

adjustment. A transferor’s remaining 

basis adjustment is equal to the amount 

of the transferor’s basis adjustment 

under section 743(b)(1) and (c) resulting 

from the first transfer as adjusted under 

section 1016(a)(2) of the Code to reflect 

the recovery of the basis adjustment or 

as otherwise adjusted prior to the 

subsequent transfer. 

(3) Applicable threshold—(i) In 

general. Except as otherwise provided 

in paragraph (c)(3)(ii) of this section, for 

determining whether a transaction is 

described in paragraph (c)(1) or (2), 

(d)(1) or (2) of this section, the 

applicable threshold is met for a taxable 

year if the sum of all basis increases 

resulting from all such transactions of a 

partnership or partner during the 

taxable year (without netting for any 

basis adjustment that results in a basis 

decrease in the same transaction or 

another transaction) exceeds by at least 

$10 million the gain recognized from 

such transactions during the same 

taxable year, if any, on which tax 

imposed under subtitle A is required to 

be paid by any of the related partners (or 

tax-indifferent party, in the case of a 

transaction described in paragraph 

(d)(1) of this section) who are a party to 

such transactions. 

(ii) Six-year lookback period 

threshold. In the case of a transaction 

described in (c) or (d) of this section that 


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2974 Federal Register / Vol. 90, No. 8 / Tuesday, January 14, 2025 / Rules and Regulations 

occurred within the six-year lookback 

period, paragraph (c)(3)(i) applies by 

substituting ‘‘$25 million’’ for ‘‘$10 

million’’ for determining whether the 

applicable threshold is met for a taxable 

year. 

(iii) Basis increase under section 

734(b) and (c) only for shares of basis 

increase to related partners. In the case 

of a transaction described in paragraph 

(c)(1)(i) of this section for determining 

whether the applicable threshold is met 

for a taxable year, a basis increase is an 

increase to the adjusted basis of the 

partnership’s property under section 

734(b)(1) and (c) only to the extent of a 

related partner’s share of the basis 

increase. For purposes of this paragraph 

(c)(3)(iii), a partner’s share of a basis 

increase is determined immediately 

after the distribution under rules similar 

to the rules of § 1.197–2(h)(12)(iv)(D). 

(iv) Basis increase under sections 

732(b) or (c) only for shares of 

corresponding basis decreases under 

section 734(b) to related partners or taxindifferent parties. In the case of a 

transaction described in paragraph 

(c)(1)(ii) of this section for determining 

whether the applicable threshold is met 

for a taxable year, a basis increase is an 

increase to the basis of property 

distributed to one of the related partners 

under section 732(b) or (c), but 

excluding the amount of any basis 

increase that corresponds to a decrease 

to the basis of property distributed to 

unrelated partners (other than taxindifferent parties) under section 732(b) 

and (c) or to unrelated partners’ (other 

than tax-indifferent parties’) shares of a 

corresponding decrease to the basis of 

the partnership’s remaining property 

under section 734(b)(2) and (c). For 

purposes of this paragraph (c)(3)(iv), a 

partner’s share of a basis decrease is 

determined immediately after the 

distribution under rules similar to the 

rules of § 1.197–2(h)(12)(iv)(D). In the 

case of a transaction described in 

paragraph (d)(1) of this section, for 

purposes of determining whether the 

applicable threshold is met for a taxable 

year, a basis increase is an increase to 

the basis of property distributed to one 

of the partners under section 732(b) or 

(c) only to the extent of a corresponding 

decrease to the basis of property 

distributed to a tax-indifferent party 

under section 732(b) and (c) or to one 

or more tax-indifferent party’s shares of 

a corresponding decrease to the basis of 

the partnership’s remaining property 

under section 734(b)(2) and (c). 

(4) Exclusion of a transfer on the 

death of a partner. A transaction 

described in paragraph (c)(2) or (d)(2) of 

this section does not include a transfer 

of a partnership interest that is a transfer 

on the death of a partner within the 

meaning of paragraph (b)(13) of this 

section. 

(d) Substantially similar transaction. 

A transaction that is substantially 

similar (within the meaning of § 1.6011– 

4(c)(4)) to a transaction described in 

paragraph (c) of this section includes, 

but is not limited to: 

(1) A transaction that is described in 

paragraph (c)(1)(i) or (ii) of this section 

except that the partners of the 

partnership are not related and one or 

more partners of the partnership is a 

tax-indifferent party that facilitates an 

increase in the basis of partnership 

property or an increase in the basis of 

property held by another partner in the 

partnership by receiving a distribution 

of property from the partnership or 

having a share of a corresponding 

decrease to the basis of partnership 

property, and the applicable threshold 

described in paragraph (c)(3) of this 

section is met; and 

(2) A transaction in which a transferor 

transfers an interest in a partnership to 

a transferee that is related to the 

transferor in a recognition transaction, 

and the applicable threshold described 

in paragraph (c)(3) of this section is met. 

(e) Participation—(1) In general. 

Whether a taxpayer has participated in 

a transaction of interest described in 

paragraph (c) of this section or a 

substantially similar transaction 

described in paragraph (d) of this 

section during a taxable year is 

determined under this paragraph (e). 

(2) Participating partners. A 

participating partner participates in a 

transaction of interest described in 

paragraph (c)(1) of this section or a 

substantially similar transaction 

described in paragraph (d)(1) of this 

section in any taxable year in which the 

partner directly receives a distribution 

of property, or directly transfers or 

receives an interest in a participating 

partnership, in a transaction described 

in paragraph (c)(2) of this section or a 

substantially similar transaction 

described in paragraph (d)(2) of this 

section. 

(3) Participating partnerships. A 

participating partnership participates in 

a transaction of interest described in 

paragraph (c) or a substantially similar 

transaction described in paragraph (d) of 

this section in any taxable year in which 

the partnership makes a distribution of 

property to a participating partner in a 

transaction described in paragraph (c)(1) 

or (d)(1) of this section, or a 

participating partnership interest is 

transferred in a transaction described in 

paragraph (c)(2) or (d)(2) of this section. 

(4) Related subsequent transferees. A 

related subsequent transferee 

participates in a transaction of interest 

described in paragraph (c) of this 

section or a substantially similar 

transaction described in paragraph (d) of 

this section in any taxable year in which 

the related subsequent transferee 

directly receives, in a nonrecognition 

transaction, a transfer (including a 

distribution) of property that was 

subject to an increase in basis as a result 

of a transaction described in paragraph 

(c) or (d) of this section that was 

required to be disclosed under 

paragraph (f) of this section. 

(5) Subsequent realization of tax 

benefit. A participating partnership, 

participating partner, or related 

subsequent transferee also participates 

in a transaction of interest described in 

paragraph (c) or a substantially similar 

transaction described in paragraph (d) of 

this section in any taxable year in which 

its tax return reflects the tax 

consequences of a basis increase 

resulting from a transaction of interest 

described in paragraph (c) or (d) of this 

section, taking into account the 

limitations provided in paragraphs 

(c)(3)(iii) and (iv) of this section. For 

example, if a participating partner sells 

property the basis of which has been 

increased as a result of a transaction of 

interest described in paragraph (c) of 

this section during a taxable year after 

the taxable year in which the 

transaction of interest occurred, the 

participating partner participates in a 

transaction of interest described in 

paragraph (c) of this section in the 

taxable year of the basis increase and in 

the taxable year of the sale. 

(f) Disclosure requirements—(1) In 

general. Except as otherwise provided 

in this paragraph (f)(1), participants 

must provide the information required 

under § 1.6011–4(d) and the Instructions 

to Form 8886, Reportable Transaction 

Disclosure Statement (or successor 

form), and in the manner described in 

§ 1.6011–4(e), for each taxable year in 

which the participant participated in a 

transaction described in paragraph (c) or 

(d) of this section as determined under 

paragraph (e) of this section. For all 

participants, describing the transaction 

in sufficient detail includes describing 

the information described in paragraphs 

(f)(1)(i) through (iii) of this section, as 

applicable, on Form 8886 (or successor 

form) for the taxable year of a 

transaction described in paragraph (c) or 

(d) of this section. In the case of a 

participant that is a tax-indifferent 

party, the disclosure requirements of 

this paragraph (f) apply only if the taxindifferent party is otherwise required 

to file a tax return (or an information 

return) for the taxable year of the 


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Federal Register / Vol. 90, No. 8 / Tuesday, January 14, 2025 / Rules and Regulations 2975 

transaction described in paragraph 

(d)(1) of this section. 

(i) The names and identifying 

numbers of all participants, including 

the participating partnership, 

participating partners and any related 

subsequent transferees. 

(ii) All basis adjustments resulting 

from a transaction described in 

paragraph (c) or (d) of this section, 

including— 

(A) Basis information, including the 

participating partnership’s adjusted 

basis in the distributed property 

immediately before the distribution, 

(B) Any adjustments to basis under 

section 732(a)(2), (b), (d) or section 

734(b), 

(C) Any adjustments to basis under 

section 743(b) with respect to a 

participating partner that is transferred 

an interest in a participating 

partnership, and 

(D) With respect to a participating 

partner that transfers an interest in a 

participating partnership, that 

participating partner’s adjusted basis in 

the participating partnership interest 

and share of the participating 

partnership’s adjusted basis in its 

property immediately before the 

transfer. 

(iii) Any Federal income tax 

consequences realized during the 

taxable year as a result of a transaction 

described in paragraph (c) or (d) of this 

section, including any cost recovery 

allowances attributable to any increase 

in basis as a result of a transaction 

described in paragraph (c) of this 

section, and any gain or loss attributable 

to the disposition of property that was 

subject to an increase in basis as a result 

of a transaction described in paragraph 

(c) or (d) of this section. The Federal 

income tax consequences attributable to 

an increase in basis resulting from a 

transaction described in paragraph (c) or 

(d) of this section are limited to those 

attributable to the increase in basis, 

taking into account the limitations of 

paragraph (c)(3)(iii) or (iv) of this 

section. For example, in the case of a 

distribution of depreciable property that 

was subject to an increase in basis 

because of a transaction described in 

paragraph (c) or (d) of this section, the 

Federal income tax consequences 

realized during the taxable year include 

the basis increase and cost recovery 

allowances attributable to the basis 

increase during the taxable year. 

(2) Six-year lookback period for 

taxable years described in special rule 

of § 1.6011–4(e)(2)(i). For purposes of 

the special rule of § 1.6011–4(e)(2)(i) 

(describing the disclosure requirement 

with respect to a transaction that is 

identified as a transaction of interest 

after the filing of the taxpayer’s tax 

return (including an amended return) 

reflecting the taxpayer’s participation in 

the transaction of interest but before the 

end of the period of limitations for 

assessment of tax for such taxable year), 

a participant must provide the 

information described in paragraph 

(f)(1) of this section for such open years 

only if the transaction described in 

paragraph (c) or (d) of this section 

occurred within the six-year lookback 

period described in paragraph (b)(11) of 

this section. 

(g) Examples. The following examples 

illustrate the provisions of this section. 

(1) Example 1: Reporting by a 

participating partner and participating 

partnership in the taxable year of the 

transaction, including cost recovery 

allowances—(i) Facts. ABC Partnership 

is owned by partners A, B, and C. 

Partners A, B, and C are related within 

the meaning of paragraphs (b)(8) and (9) 

of this section. At the beginning of 

taxable year 2025, ABC Partnership 

distributes a depreciable asset, Property 

X, to Partner A in liquidation of Partner 

A’s interest in ABC Partnership. The 

distribution is a transaction described in 

paragraph (c)(1)(ii) of this section. As a 

result of the distribution, the basis of 

Property X is increased by $10 million 

in Partner A’s hands. On its tax return 

for taxable year 2025, Partner A reports 

deductions for depreciation expense 

attributable to the $10 million increase 

in the basis of Property X resulting from 

the transaction under paragraph 

(c)(1)(ii) of this section. In addition, 

ABC Partnership must reduce the basis 

of its remaining property under section 

734(b)(2) as a result of the distribution 

of Property X to Partner A by $10 

million. ABC Partnership and Partner A 

use the calendar year as their taxable 

year. 

(ii) Analysis. Partner A is a participant 

during taxable year 2025 within the 

meaning of paragraph (e) of this section 

because it is a participating partner 

within the meaning of paragraph (b)(3) 

of this section since it directly received 

a distribution of property during taxable 

year 2025 in a transaction described in 

paragraph (c) of this section. ABC 

Partnership is a participant during 

taxable year 2025 within the meaning of 

paragraph (e) of this section because it 

is a participating partnership within the 

meaning of paragraph (b)(4) of this 

section since it made a distribution of 

property to a participating partner 

during taxable year 2025 in a 

transaction described in paragraph (c) of 

this section. As part of its disclosure 

requirements under paragraph (f) of this 

section and § 1.6011–4(d) and (e), 

Partner A must disclose the distribution 

as a transaction of interest under this 

section on Form 8886 (or successor 

form) and file the form with its tax 

return for taxable year 2025. Partner A 

must include the information described 

in paragraph (f) of this section, 

including the amount of the deductions 

attributable to the $10 million increase 

in the basis of Property X resulting from 

the transaction described in paragraph 

(c)(1)(ii) of this section. As part of its 

disclosure requirements under 

paragraph (f) of this section and 

§ 1.6011–4(d) and (e), ABC Partnership 

must disclose the distribution as a 

transaction of interest under this section 

on Form 8886 (or successor form) and 

file the form with its tax return for 

taxable year 2025, including the 

information described in paragraph (f) 

of this section. In addition, Partner A 

and ABC Partnership must send a copy 

of their respective Form 8886 (or 

successor form) to the Office of Tax 

Shelter Analysis (OTSA). 

(2) Example 2: Reporting of the 

Federal income tax consequences (cost 

recovery allowances) of the transaction 

in all taxable years—(i) Facts. Under the 

same facts as in paragraph (g)(1)(i) of 

this section (Example 1), on its tax 

returns for taxable years 2026 through 

2030, Partner A reports deductions for 

depreciation expense attributable to the 

$10 million increase in the basis of 

Property X related to the transaction 

described in paragraph (c)(1)(ii) of this 

section, which occurred in taxable year 

2025. 

(ii) Analysis. As part of its disclosure 

requirements under paragraph (f) of this 

section and § 1.6011–4(d) and (e), 

Partner A must disclose the deductions 

on Form 8886 (or successor form) for 

taxable years 2026 through 2030 as the 

Federal income tax consequences of the 

transaction described in paragraph 

(c)(1)(ii) of this section. As a result, for 

each of taxable years 2026 through 2030, 

Partner A must file the form with its tax 

return for the taxable year with the 

information described in paragraph (f) 

of this section, including the amount of 

the deductions for the taxable year 

attributable to the $10 million increase 

in the basis of Property X resulting from 

the transaction described in paragraph 

(c)(1)(ii) of this section. 

(3) Example 3: Reporting by a 

participating partner, participating 

partnership, and related subsequent 

transferee in the taxable year of the 

transaction—(i) Facts. The facts are the 

same as in paragraph (g)(1)(i) of this 

section (Example 1), except that at the 

beginning of taxable year 2025, instead 

of distributing a depreciable asset, ABC 

Partnership distributes a nondepreciable 

asset, Land with an adjusted basis of $5 


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2976 Federal Register / Vol. 90, No. 8 / Tuesday, January 14, 2025 / Rules and Regulations 

million, to Partner A in liquidation of 

Partner A’s interest in ABC Partnership. 

The distribution is a transaction 

described in paragraph (c)(1)(ii) of this 

section. As a result of the distribution, 

the basis of Land is increased to $15 

million in Partner A’s hands. 

Subsequently in the same taxable year 

2025, Partner A contributes Land to 

another partnership, AX Partnership, in 

a transfer that is treated as a 

contribution of property under section 

721(a). Partner A and AX Partnership 

are related within the meaning of 

paragraph (b)(8) of this section. ABC 

Partnership, Partner A and AX 

Partnership use the calendar year as 

their taxable year. 

(ii) Analysis. Partner A is a participant 

during taxable year 2025 within the 

meaning of paragraph (e) of this section 

because it is a participating partner 

within the meaning of paragraph (b)(3) 

of this section since Partner A directly 

received a distribution of property 

during taxable year 2025 in a 

transaction described in paragraph (c) of 

this section. ABC Partnership is a 

participant during taxable year 2025 

within the meaning of paragraph (e) of 

this section because it is a participating 

partnership within the meaning of 

paragraph (b)(4) of this section since it 

made a distribution of property to a 

participating partner during taxable year 

2025 in a transaction described in 

paragraph (c) of this section. AX 

Partnership is a participant during 

taxable year 2025 within the meaning of 

paragraph (e) of this section because it 

is a related subsequent transferee within 

the meaning of paragraph (b)(10) of this 

section since it directly received in a 

nonrecognition transaction a transfer of 

property during taxable year 2025 that 

was subject to an increase in basis 

because of a transaction described in 

paragraph (c) of this section. As part of 

its disclosure requirements under 

paragraph (f) of this section and 

§ 1.6011–4(d) and (e), Partner A must 

disclose the distribution as a transaction 

of interest under this section on Form 

8886 (or successor form) and file the 

form with its tax return for taxable year 

2025. Partner A must include the 

information described in paragraph (f) 

of this section. As part of its disclosure 

requirements under paragraph (f) of this 

section and § 1.6011–4(d) and (e), ABC 

Partnership must disclose the 

distribution as a transaction of interest 

under this section on Form 8886 (or 

successor form) and file the form with 

its tax return for taxable year 2025, 

including the information described in 

paragraph (f) of this section. Further, AX 

Partnership is subject to the disclosure 

requirements under paragraph (f) of this 

section and § 1.6011–4(d) and (e). AX 

Partnership must disclose that it is a 

related subsequent transferee within the 

meaning of paragraph (b)(10) of this 

section that received, in a 

nonrecognition transaction, a transfer of 

property that was distributed in a 

transaction of interest under this section 

on Form 8886 (or successor form) and 

file the form with its tax return for 

taxable year 2025. In addition, Partner 

A, ABC Partnership and AX Partnership 

must send a copy of their respective 

Form 8886 (or successor form) to the 

OTSA. 

(4) Example 4: Reporting of the 

Federal income tax consequences 

(reduced taxable gain) of the transaction 

in the taxable year of disposition of the 

property—(i) Facts. Under the same 

facts as in paragraph (g)(3)(i) of this 

section (Example 3), in taxable year 

2026, AX Partnership disposes of Land 

in a taxable sale for its fair market value 

of $15 million and recognizes no gain or 

loss. 

(ii) Analysis. As part of its disclosure 

requirements under paragraph (f) of this 

section and § 1.6011–4(d) and (e), AX 

Partnership must disclose the taxable 

gain (zero) on the disposition of Land on 

Form 8886 (or successor form) for 

taxable year 2026 as the Federal income 

tax consequences of the transaction 

described in paragraph (c)(1)(ii) of this 

section. AX Partnership must file the 

form with its tax return for taxable year 

2026. Partner A does not have a 

disclosure requirement with respect to 

AX Partnership’s disposition of Land 

because the disposition is a subsequent 

realization of a tax benefit within the 

meaning of paragraph (e)(5) of this 

section with respect to AX Partnership. 

(5) Example 5. Reporting of a 

transaction of interest that occurred 

within the six-year lookback period—(i) 

Facts. The facts are the same as in 

paragraph (g)(1)(i) of this section 

(Example 1), except that instead of ABC 

Partnership distributing Property X in 

taxable year 2025, the distribution is 

made in May of taxable year 2022, 

which is within the six-year lookback 

period described in paragraph (b)(11) of 

this section. That is, the distribution 

occurred within the seventy-two months 

immediately preceding January 2025, 

the first month of the taxpayer’s most 

recent taxable year that began before 

January 14, 2025. Further, taxable year 

2022 is an open taxable year subject to 

the special rule of § 1.6011–4(e)(2)(i). 

Additionally, neither Partner A nor ABC 

Partnership engages in any other 

transaction described in paragraph (c) or 

(d) of this section for taxable year 2022. 

(ii) Analysis. Because the transaction 

occurred within the six-year lookback 

period described in paragraph (b)(11) of 

this section, the applicable threshold 

described in paragraph (c)(3)(i) of this 

section is $25 million as provided in 

paragraph (c)(3)(ii) of this section. The 

distribution of Property X to Partner A 

is not a transaction described in 

paragraph (c)(1)(ii) of this section with 

respect to either Partner A or ABC 

Partnership because the applicable 

threshold is not met for taxable year 

2022. Had the applicable threshold for 

taxable year 2022 been met, all the 

information required by paragraph (f)(1) 

of this section must be reported in its 

disclosure for taxable year 2022 and for 

any subsequent taxable year for which 

the taxpayer’s return reflected the tax 

consequences of the transaction. 

(6) Example 6. No reporting of a 

transaction of interest for transaction 

that occurred prior to the six-year 

lookback period—(i) Facts. The facts are 

the same as in paragraph (g)(1)(i) of this 

section (Example 1), except that as a 

result of the distribution of Property X 

to Partner A, the basis of Property X is 

increased by $30 million, and the 

distribution occurred in December of 

taxable year 2018, which is prior to the 

six-year lookback period described in 

paragraph (b)(11) of this section. That is, 

the transaction occurred prior to January 

2019, which is the beginning of the 

seventy-two-month period that ends in 

December 2024. In addition, taxable 

year 2018 is an open taxable year 

subject to the special rule of § 1.6011– 

4(e)(2)(i). Further, Partner A realized 

Federal income tax consequences 

(depreciation expense) in taxable year 

2019 attributable to the $30 million 

increase to the basis of Property X and 

taxable year 2019 is an open taxable 

year subject to the special rule of 

§ 1.6011–4(e)(2)(i). 

(ii) Analysis. Because taxable year 

2018 is not within the six-year lookback 

period, under paragraph (f)(2) of this 

section, neither the distribution of 

Property X to Partner A, nor any of the 

Federal income tax consequences 

arising in that taxable year or later 

taxable years (such as depreciation 

expense in taxable year 2019 or any 

later taxable year) from such 

distribution, is required to be disclosed 

under paragraph (f) of this section and 

§§ 1.6011–4(d) and (e). 

(7) Example 7. Corresponding basis 

decrease under section 734(b)(2)(B) 

shared by an unrelated partner—(i) 

Facts. The facts are the same as in 

paragraph (g)(1)(i) of this section 

(Example 1), except Partner C is 

unrelated to Partners A and B and is not 

a tax-indifferent party. As a result of the 


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Federal Register / Vol. 90, No. 8 / Tuesday, January 14, 2025 / Rules and Regulations 2977 

distribution of Property X to Partner A, 

and the increase to the basis of Property 

X by $10 million in Partner A’s hands, 

ABC Partnership is required to reduce 

the adjusted basis of its remaining 

properties under section 734(b)(2)(B) by 

$10 million. Partner B’s and Partner C’s 

share of ABC Partnership’s basis 

decrease to its remaining properties is 

$5 million each. Neither Partner A nor 

ABC Partnership engages in any other 

transaction described in paragraph (c) of 

this section for taxable year 2025. 

(ii) Analysis. For purposes of 

paragraphs (c)(1)(ii) and (c)(3)(i) of this 

section, under paragraph (c)(3)(iv) of 

this section, only $5 million of the $10 

million basis increase to Property X 

counts toward the applicable threshold 

because $5 million of the basis increase 

corresponds to unrelated Partner C’s 

share of the decrease to the basis of ABC 

Partnership’s remaining properties 

under section 734(b)(2)(B) and thus, is 

excluded from the calculation of the 

applicable threshold. Thus, the 

distribution of Property X to Partner A 

is not a transaction described in 

paragraph (c)(1)(ii) of this section with 

respect to either Partner A or ABC 

Partnership because the applicable 

threshold is not met for taxable year 

2025. 

(h) Extension of time—(1) Taxpayer 

disclosures. Taxpayers will be treated as 

having met their requirements to 

disclose timely under § 1.6011–4(e)(2)(i) 

if they file their disclosure with the 

OTSA by July 14, 2025. 

(2) Material advisor disclosures. 

Material advisors who have made a tax 

statement before January 14, 2025 will 

be treated as having met their 

requirements to disclose timely under 

§ 301.6111–3(e) of this chapter if they 

file their disclosure with the OTSA by 

the date that is an additional 90 days 

beyond the last day for filing specified 

in § 301.6111–3(e) of this chapter. 

(i) Applicability date—(1) In general. 

This section’s identification of 

transactions that are the same as or 

substantially similar (within the 

meaning of § 1.6011–4(c)(4)) to the 

transactions described in paragraph (c) 

of this section as transactions of interest 

for purposes of § 1.6011–4(b)(6) and 

sections 6111 and 6112 of the Code is 

effective January 14, 2025. 

(2) Material advisors. 

Notwithstanding § 301.6111–3(b)(4)(i) 

and (iii) of this chapter, material 

advisors are required to disclose only if 

they have made a tax statement on or 

after January 14, 2019. 

Douglas W. O’Donnell, 

Deputy Commissioner. 

Approved: January 3, 2025. 

Aviva R. Aron-Dine, 

Deputy Assistant Secretary of the Treasury 

(Tax Policy). 

[FR Doc. 2025–00324 Filed 1–10–25; 8:45 am] 

BILLING CODE 4830–01–P 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Part 1 

[TD 10022] 

RIN 1545–BM41 

Classification of Digital Content 

Transactions and Cloud Transactions 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Final regulations. 

SUMMARY: This document contains final 

regulations modifying the rules for 

classifying transactions involving 

computer programs, including by 

applying the rules to transfers of digital 

content. These final regulations also 

provide rules for the classification of 

cloud transactions. These rules apply 

for purposes of the international 

provisions of the Internal Revenue Code 

and generally affect taxpayers engaging 

in transactions involving digital content 

or cloud transactions. 

DATES: 

Effective date: These regulations are 

effective on January 14, 2025. 

Applicability date: For dates of 

applicability, see §§ 1.861–18(i) and 

1.861–19(e). 

FOR FURTHER INFORMATION CONTACT: 

Christopher E. Fulle, (202) 317–5367, or 

Michelle L. Ng, (202) 317–6989 (not tollfree numbers). 

SUPPLEMENTARY INFORMATION: 

Authority 

These final regulations are issued 

under the express delegation of 

authority under section 7805 of the 

Internal Revenue Code (Code). Section 

7805(a) directs the Secretary of the 

Treasury or her delegate to prescribe all 

needful rules and regulations for the 

enforcement of that section and others 

in the Code, including all rules and 

regulations as may be necessary by 

reason of any alteration of law in 

relation to internal revenue. 

Background 

On August 14, 2019, the Department 

of the Treasury (Treasury Department) 

and the Internal Revenue Service (IRS) 

published proposed regulations (REG– 

130700–14) under section 861 of the 

Code in the Federal Register (84 FR 

40317) (the proposed regulations). The 

Treasury Department and the IRS 

received written comments on the 

proposed regulations, and a public 

hearing was held on February 11, 2020. 

All written comments received in 

response to the proposed regulations are 

available at www.regulations.gov or 

upon request. Terms used but not 

defined in this preamble have the 

meaning provided in these final 

regulations. 

These regulations (the final 

regulations) extend the classification 

rules in existing § 1.861–18 to transfers 

of digital content other than computer 

programs and clarify the source of 

income for certain transfers of digital 

content. The final regulations also 

clarify the classification of transactions 

involving on-demand network access to 

computing and other similar resources. 

The final regulations retain the overall 

approach of the proposed regulations, 

with certain revisions discussed in the 

preamble. The preamble also discusses 

comments received in response to the 

solicitation of comments in the notice of 

proposed rulemaking. 

Summary of Comments and 

Explanation of Revisions 

I. General Classification Issues 

A. Replacement of De Minimis Rule 

With a Predominant Character Rule 

Section 1.861–18(b)(1), as in effect 

before this Treasury decision, described 

four transactions involving computer 

programs: the transfer of a copyright 

right, the transfer of a copyrighted 

article, the provision of services for the 

development or modification of a 

computer program, and the provision of 

know-how relating to the development 

of a computer program. Section 1.861– 

18(b)(2) required any transaction that 

consisted of more than one of the 

transactions described in § 1.861– 

18(b)(1) to be treated as separate 

transactions, unless a transaction was de 

minimis, in which case it would be 

treated as part of another transaction. 

The proposed regulations generally 

retained the four types of transactions 

(with the expansions described in Part 

II.A of this Summary of Comments and 

Explanation of Revisions) and preserved 

the de minimis rule, but for clarification 

purposes, § 1.861–18(b)(2) was proposed 

to be modified by introducing the term 


khammond on DSK9W7S144PROD with RULES