16 October 2024 IRS releases Draft Form 7217 and instructions for reporting property distributed by a partnership The IRS has released Draft Form 7217, and accompanying draft instructions, for a partner to report distributions of property received from a partnership. Further, on September 30, the IRS issued a request for public comment on the draft form and the instructions. The new Draft Form 7217, released on August 28, 2024, follows an earlier draft of the form released by the IRS on July 2, 2024. Form 7217 would be a new tax form for the 2024 tax year. If finalized, a partner receiving a distribution of property from a partnership would be required to file the form to report the basis of the distributed property, including any basis adjustment to that property required by IRC Section 732(a) or (b). Taxpayers would file Form 7217 for each date during the tax year that they actually (and not constructively) received distributed property from a partnership subject to IRC Section 732. Form 7217 would not be filed for (1) distributions of money (or marketable securities that are treated as money), (2) payments received by a partner for services performed other than in their capacity as a partner under IRC Section 707(a)(1), or (3) transfers that are treated as disguised sales under IRC Section 707(a)(2)(B). Comments can be submitted to the IRS on the draft form or instructions on the IRS Draft tax forms page. Part I of draft Form 7217 aggregates the information disclosed on Part II. See below for further details regarding Part II. The partnership must report the information necessary for completing Part II of the form on Schedule K-1, line 19, code C, or, if applicable, in an IRC Section 732(d) statement attached to the Schedule K-1. Column (a) of the form requires taxpayers to include a description of the distributed property and, if applicable, the asset class code from Appendix B in Publication 946. Column (b) requires taxpayers to enter the partnership's adjusted tax basis in distributed property immediately before the distribution. This amount should include any basis adjustments under IRC Sections 732(d), 734(b) or 743(b), if applicable. Column (c), (i) through (iv) are used to indicate if the partnership's adjusted tax basis reported in column (b) includes a special basis adjustment under IRC Sections 732(d), 732(f), 734(b) or 743(b), respectively. Taxpayers would report the fair market value of the distributed property reported to them on their Schedule K-1 in Column (d). Column (e) requires taxpayers to report their basis in each distributed property after applying IRC Section 732. For non-liquidating distributions where the IRC Section 732(a)(2) limitation applies, taxpayers would enter their basis in each distributed property after applying IRC Section 732(a)(2) and (c). For liquidating distributions, taxpayers would determine the basis in each distributed property after applying IRC Section 732(b) and (c). The IRS and Treasury have released draft Form 7217, which would be filed by partners that receive property distributions from a partnership. The draft Form 7217 would be filed with the partner's relevant annual tax filing (e.g., Form 1040, Form 1120, Form 1041), including customary extensions. While draft Form 7217 is released on the heels of "related party basis shifting" transaction guidance, the draft instructions to Form 7217 make clear that a partner must file this new form regardless of whether distributed property has a basis adjustment in the hands of the partner. Furthermore, a partner would file a separate IRS Form 7217 for each day there was a distribution (unless the distribution is part of the exempted categories described above).
Document ID: 2024-1897 | ||||