Navigating Current and Future IRS Changes
The Internal Revenue Service (IRS) has unveiled draft Form 7217, "Partner's Report of Property Distributed by a Partnership," set for implementation in the 2024 tax year. This new form represents a significant shift in how partners report property distributions from partnerships, and the IRS is currently seeking public comments on both the form and its instructions.
Form 7217 is designed to report the basis of all property distributions that a partner receives from a partnership, whether in non-liquidating or liquidating distributions. It must be filed by any partner receiving a property distribution, regardless of basis adjustment, but is not required for distributions consisting solely of money or marketable securities treated as money for tax purposes.
The introduction of Form 7217 brings both potential benefits and challenges. On the positive side, it promises enhanced transparency and accuracy in reporting partnership distributions, potentially reducing instances of misreporting and making IRS audits more efficient. While this may not be received well by clients in every instance, it enhances the preparer’s ability to rely on tax laws to improve reporting.
However, the increased disclosure requirements come with drawbacks. Partners and partnerships will face additional administrative burdens and potential costs associated with preparing and filing the new form. Preparers will need to carefully consider the additional work for future tax years before setting prices. There are also concerns about privacy and the complexity it adds to an already intricate tax system. The risk of inadvertent errors or omissions increases with more detailed reporting, potentially triggering audits or penalties where the form was intended to reduce both.
Furthermore, the new requirements may influence partnership distribution strategies, leading to decisions based on tax considerations rather than purely business factors. This could have unintended consequences on business operations and planning.
As the IRS finalizes Form 7217, tax professionals, business owners, and other stakeholders should closely monitor developments and consider submitting comments. The implementation will likely require adjustments to tax planning strategies and partnership agreements to ensure compliance.
While the increased transparency may contribute to a fairer tax system, partners and partnerships will need to carefully weigh the costs and benefits of these new disclosure requirements. Education, preparation, and possibly seeking professional advice will be key to navigating this new landscape of partnership distributions and tax compliance. Preparers should consider timely communication to clients to make them aware well in advance of potential new filing requirements and pricing changes.
Christine Gervais is a licensed CPA, using her skills to help businesses grow and achieve their fullest potential. Christine has a Master’s degree in accounting from Southern New Hampshire University in addition to holding her CPA license for over a decade. Notably, Christine is a nationally recognized speaker providing education to other CPAs on how to best serve clients as well as instruction on a wide variety of topics for business owners on how to maximize success. Christine prides herself on the value she can bring to clients with her extensive tax knowledge and provides strategic, forward-thinking financial strategies to help clients grow. When not behind her desk, you can find Christine spending quality time with her daughter and stepson or tending to the family’s excessively loved farm animals.
Subscribe to the TPN Newsletter!
Like what you're reading?
Subscribe to our FREE newsletter and we'll deliver content like this directly to your inbox.