How to fast-track your compliances
The Treasury Department and Internal Revenue Service have announced plans to revoke the partnership basis-shifting reporting regime implemented by the previous administration, signaling a substantial shift in compliance requirements that tax practitioners should immediately incorporate into their client advisory services and preparation procedures.
On April 17, 2025, the Treasury and IRS released Notice 2025-23, which explicitly states their intention to publish proposed regulations removing the final regulations (T.D. 10028) issued in January 2025. Those regulations had designated various partnership related-party basis adjustment transactions as "transactions of interest" requiring comprehensive disclosure and documentation. The previous administration had implemented these measures as part of a broader tax compliance initiative targeting large partnerships and high-net-worth taxpayers.
The incoming administration has cited Executive Order 14219, issued by President Trump on February 19, 2025, which directed federal agencies to review regulations under their jurisdiction. According to Notice 2025-23, the basis-shifting guidance is being revoked in response to criticism from taxpayers and material advisers who argued the requirements were "overly complex, unduly burdensome, and unfairly retroactive."
The reversal creates several immediate implications for tax practitioners:
Perhaps most significantly for practitioners with clients currently subject to these requirements, the IRS has announced it will waive penalties under sections 6707A(a), 6707(a), and 6708 for any failure by participants or material advisers to file the disclosure statements or maintain the lists that had been required under the now-revoked regulations. This penalty waiver applies to all previously mandated disclosure and recordkeeping obligations related to these transactions.
Beyond removing the existing reporting requirements, the Treasury and IRS have also withdrawn Notice 2024-54, which had announced their intention to issue two sets of future proposed regulations aimed at reducing or eliminating the tax benefits of partnership basis-shifting transactions between related parties. The withdrawal signals that the substantive attack on these types of transactions has been abandoned, at least for the foreseeable future.
For clients who have already complied with the reporting requirements by filing disclosure statements or maintaining lists, practitioners should document the government's reversal of position and maintain records demonstrating compliance with the regulations during their effective period. While penalties are being waived for non-compliance, maintaining documentation of good-faith compliance efforts remains prudent.
For clients with transactions currently in process or contemplated that would have fallen under the reporting regime, practitioners can advise that the anticipated regulatory constraints and disclosure obligations are being removed. However, practitioners should emphasize that standard documentation requirements for partnership transactions remain in effect, and that proper substantiation of business purpose and economic substance remains essential regardless of specific reporting requirements.
The withdrawal of both the reporting regime and the planned substantive regulations potentially reopens planning opportunities involving partnership basis adjustments between related parties. Practitioners may wish to review client portfolios to identify situations where such planning might yield tax benefits previously threatened by the now-withdrawn guidance.
Firms that invested in training staff on the complex reporting requirements should update their educational materials and internal procedures to reflect the policy reversal. This includes modifying any checklists, compliance reviews, or quality control procedures that incorporated the now-revoked requirements.
Consider developing standardized communications to inform clients about these changes, particularly those with complex partnership structures or those who may have been deterred from certain transactions due to the previous reporting requirements. Clear explanations of what has changed and the potential planning implications will demonstrate value to clients.
While the specific reporting requirements have been withdrawn, practitioners should maintain robust documentation standards for partnership transactions, particularly those involving related parties. The removal of these specific regulations does not change the fundamental need to establish and document business purpose, economic substance, and appropriate valuation of partnership interests.
This policy reversal aligns with the administration's stated goals of reducing regulatory burdens on businesses, but practitioners should advise clients that the fundamental principles of partnership taxation—including economic substance, business purpose, and appropriate valuation—remain essential elements of tax planning regardless of specific reporting requirements.
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.
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