Asset Management

Apr 17, 2025

Partnership Related-Party Basis Shifting Final Regulations - Penalty Waiver and Forthcoming Withdrawal

Insight: Notice 2025-23 – Penalty Waiver and Forthcoming Withdrawal of Final Regulations

The Treasury Department and the Internal Revenue Service (IRS) announced their intent to publish a forthcoming notice of proposed rulemaking (NPRM) to remove the Basis Shifting Transaction of Interest (TOI) Final Regulations, which became effective on January 14, 2025.

The final regulations were introduced to enhance transparency and disclosure of transactions commonly undertaken by private equity funds.

Under the Basis Shifting TOI Final Regulations, taxpayers were required to:

Review a broad scope of transactions within open tax years (e.g., a six-year look-back period), identify TOIs, and disclose them as Reportable Transactions on Form 8886 by July 14, 2025.
Material advisors (as defined by the regulations) were required to file Form 8918, the Material Advisor Disclosure Statement, to report their participation in TOI Reportable Transactions.

However, these regulations imposed undue compliance burdens and challenges.

Notice 2025-23 states that, in the interest of sound tax administration, the IRS will waive penalties for taxpayers who fail to file Form 8886 and for material advisors who fail to file Form 8918.

Additionally, the notice clarifies that:

Once finalized, the forthcoming NPRM will eliminate the need for participants and material advisors to comply with all transaction-of-interest requirements previously mandated by the Basis Shifting TOI Regulations.
The NPRM will be applicable as of the date of this notice, April 17, 2025, and will allow taxpayers and material advisors to apply it retroactively to January 14, 2025.
Taxpayers and material advisors may rely on this notice until the NPRM is finalized.

Observations:

This notice provides welcome relief from increased administrative burdens, resource-intensive exercises, and complexities to meet the compliance requirements, particularly as it involved a six-year look-back period.

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Disclaimer:

The contents of this insight are intended for general information only. illumina CPA Group, Inc. is not, by means of this communication, rendering professional advice or services. Before making any decisions or taking any action that may affect your finances or your business, you should consult a qualified professional adviser.