Prop. regs. would make permanent safe harbor for furnishing information on Sec. 751 property

Editors: Brian Hagene, CPA, CGMA (CPAmerica), and Susan M. Grais, CPA, J.D., LL.M. (Ernst & Young LLP)

The IRS and Treasury on Aug. 18, 2025, issued proposed regulations (REG–108822–25) that would make permanent the safe harbor first provided in Notice 2024–19 on the reporting of sales or exchanges of partnership interests in partnerships owning Sec. 751(a) property (i.e., inventory or unrealized receivables).

Background

Sec. 6050K and its regulations require partnerships with Sec. 751 property to provide information to each transferor and transferee involved in a sale or exchange of a partnership interest involving Sec. 751 property (a Sec. 751(a) exchange).

Partnerships must report each Sec. 751(a) exchange on Form 8308, Report of a Sale or Exchange of Certain Partnership Interests, which must be filed as an attachment to Form 1065, U.S. Return of Partnership Income. Under Regs. Sec. 1.6050K–1(c)(1), each partnership that files a Form 8308 must furnish it or a statement with the same information by the later of (1) Jan. 31 of the year following the calendar year in which the Sec. 751(a) exchange occurred or (2) 30 days after the partnership received notice of the exchange under Sec. 6050K(c) and Regs. Sec. 1.6050K–1(e). Partnerships that do not furnish timely, correct payee statements are liable for penalties under Sec. 6722.

The IRS issued a revised Form 8308 in October 2023 requiring additional information on Part IV about Sec. 751 property, including the transferor partner’s share of Sec. 751 gain and loss, collectibles gain under Sec. 1(h)(5), and unrecaptured Sec. 1250 gain under Sec. 1(h)(6).

In Notice 2024–19, the IRS announced that it would not impose penalties under Sec. 6722 on partnerships that furnish payee statements without Form 8308 for certain Sec. 751(a) exchanges during calendar year 2023 if certain conditions were met. The IRS extended the penalty relief provided by Notice 2024–19 to Sec. 751(a) exchanges that occurred during the 2024 calendar year in Notice 2025–02.

The proposed regulations

The proposed regulations would remove Regs. Sec. 1.6050K–1(c)(2), thereby eliminating the requirement that partnerships furnish the information required in Part IV of Form 8308 by Jan. 31 of the year following the calendar year in which a Sec. 751(a) exchange occurred.

The proposed regulations would also modify Regs. Sec. 1.6050K–1(c)(1) to eliminate the reference to a “completed copy of Form 8308” and replace it with a reference to “a copy of Form 8308 filled out in accordance with the instructions to the form.” The instructions to Form 8308 would be updated by the IRS to provide that only information in Parts I, II, and III of the form is required to be provided by the due dates provided in Sec. 6050K.

The removal of Regs. Sec. 1.6050K–1(c)(2), in conjunction with the modifications to Regs. Sec. 1.6050K–1(c)(1) and the Form 8308 instructions, would result in a partnership’s being required to provide the information reported on only Parts I, II, and III of Form 8308, or a statement that includes the same information, by the later of:

1. Jan. 31 of the year following the calendar year of the exchange; or
2. 30 days after the partnership receives notice of the exchange as specified by Sec. 6050K and Regs. Sec. 1.6050K-1.

A partnership would continue to be required to file a completed Form 8308, including Part IV, and attach it to its Form 1065, for the tax year of the partnership that includes the last day of the calendar year in which the Sec. 751(a) exchange took place.

A partnership would also continue to be required to report on the Schedule K–1 (Form 1065), Partner’s Share of Income, Deductions, Credits, etc., issued to the transferor partner the information that the transferor partner must report under Regs. Sec. 1.751–1(a)(3) (including the information required in Part IV of the Form 8308).

Effective date

The removal of Regs. Sec. 1.6050K–1(c)(2) is proposed to be effective on the date the proposed regulations are published as final in the Federal Register, and the amendments to Regs. Sec. 1.6050K–1(c)(1) are proposed to be effective for tax years ending on or after the date the proposed regulations are published as final in the Federal Register.

Partnerships may, however, rely on the proposed regulations and the description of the anticipated changes to the Form 8308 instructions in the preamble of the proposed regulations for Sec. 751(a) exchanges occurring on or after Jan. 1, 2025, and before the date the proposed regulations are published as final regulations in the Federal Register.

Implications

The proposed regulations provide welcome relief to taxpayers and tax practitioners by proposing to remove the requirement to provide duplicate reporting of information already required to be reported on Schedules K–1 and can be relied upon before final regulations are issued.

Editors

Brian Hagene, CPA, CGMA, is partner/owner at Mathieson, Moyski, Austin & Co. LLP in Lisle, Ill., with CPAmerica. Susan M. Grais, CPA, J.D., LL.M., is a managing director at Ernst & Young LLP in Washington, D.C.

For additional information about these items, contact thetaxadviser@aicpa.org.

Contributors are members of or associated with CPAmerica or Ernst & Young LLP, as designated.