IRS to Remove Regulations on Basis Shifting Transactions

Published: Apr 28, 2024

The IRS withdrew its basis-shifting regulations following a Feb. 2025 Executive Order. The move provides relief for taxpayers and advisers who failed to meet disclosure or recordkeeping requirements.

 

By Bill Wilson, CPA-Dallas

 

In Notice 2024-54, the IRS announced its intention to publish two sets of proposed regulations that would address certain basis-shifting transactions involving partnerships and related parties. These transactions involve partners in a partnership and their related parties that result in increases to the basis of property under Section 732, Section 734(b), or Section 743(b) of the Internal Revenue Code and generate increased cost recovery allowances, reduced gain, or increased loss upon the sale or other disposition of the basis adjusted property. According to the notice, the purpose of the regulations was to target partnership transactions in which basis adjustments were created to generate tax savings without a corresponding economic outlay.  

Final regulations were issued on Jan. 10, 2025, and included modifications to address concerns by commentators that the proposed regulations were overly broad and would capture nonabusive transactions. The regulations required taxpayers to disclose such transactions. 

In Notice 2025-23, the IRS, announced that it will remove the basis shifting regulations and will provide relief for any failure by participants or material advisers to file disclosure statements or maintain lists required by the regulations. The IRS cited a February 2025 Executive Order from President Trump that directs agencies to identify, review and rescind certain regulations and other guidance that “undermine the national interest.”

 

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