The IRS and Treasury Department on August 18, 2025, issued proposed regulations (REG-108822-25) that would make permanent the safe harbor first provided in Notice 2024-19 on the reporting of sales or exchanges of partnership interests in partnerships owning IRC Section 751(a) property (i.e., inventory or unrealized receivables).

Background

IRC Section 6050K and its regulations require partnerships with IRC Section 751 property to provide information to each transferor and transferee involved in a sale or exchange of a partnership interest involving IRC Section 751 property (IRC Section 751(a) exchange).

Partnerships must report each IRC Section 751(a) exchange on Form 8308, which must be filed as an attachment to Form 1065, U.S. Return of Partnership Income. Under Treas. Reg. Section 1.6050K-1(c)(1), each partnership that files a Form 8308 must furnish it or a statement with the same information by the later of (1) January 31 of the year following the calendar year in which the IRC Section 751(a) exchange occurred or (2) 30 days after the partnership received notice of the exchange under IRC Section 6050K and Treas. Reg Section 1.6050K-1. Partnerships that do not furnish timely, correct payee statements are liable for penalties under IRC Section 6722.

The IRS issued a revised Form 8308 in October 2023 requiring additional information on Part IV about IRC Section 751 property, including the transferor partner's share of IRC Section 751 gain and loss, collectibles gain under IRC Section 1(h)(5) and unrecaptured IRC Section 1250 gain under IRC Section 1(h)(6).

In Notice 2024-19, the IRS announced that it would not impose penalties under IRC Section 6722 on partnerships that furnish payee statements without Form 8308 for certain IRC Section 751(a) exchanges during calendar year 2023 if certain conditions were met. (See Tax Alert 2024-0203.) The IRS extended the penalty relief provided by Notice 2024-19 to IRC Section 751(a) exchanges that occurred during the 2024 calendar year in Notice 2025-02. (See Tax Alert 2024-2352.)

The proposed regulations

The proposed regulations would remove Treas. Reg. Section 1.6050K-1(c)(2), thereby eliminating the requirement that partnerships furnish the information required in Part IV of the Form 8308 by January 31 of the year following the calendar year in which an IRC Section 751(a) exchange occurred.

The proposed regulations would also modify Treas. Reg. Section 1.6050K-1(c)(1) to eliminate the reference to a "completed copy of Form 8308" and replace it with a reference to "a copy of Form 8308 filled out in accordance with the instructions to the form." The instructions to Form 8308 would be updated by the IRS to provide that only information in Parts I, II and III of the form is required to be provided by the due dates provided in IRC Section 6060K.

The removal of Treas. Reg. Section 1.6050K-1(c)(2), in conjunction with the modifications to Treas. Reg. Section 1.6050K-1(c)(1) and the Form 8308 instructions, would result in a partnership being required to provide the information reported on only Parts I, II, and III of Form 8308, or a statement that includes the same information, by the later of:

1. January 31 of the year following the calendar year of the exchange

or

2. 30 days after the partnership receives notice of the exchange as specified by IRC Section 6050K and Treas. Reg. Section 1.6050K-1

A partnership would continue to be required to file a completed Form 8308, including Part IV, and attach it to its Form 1065, for the tax year of the partnership that includes the last day of the calendar year in which the IRC Section 751(a) exchange took place.

A partnership would also continue to be required to report on the Schedule K-1 (Form 1065) issued to the transferor partner the information that the transferor partner must report under Treas. Reg. Section 1.751-1(a)(3) (including the information required in Part IV of the Form 8308).

Effective date

The removal of Treas. Reg. Section 1.6050K-1(c)(2) is proposed to be effective on the date the proposed regulations are published as final in the Federal Register, and the amendments to Treas. Reg. Section 1.6050K-1(c)(1) are proposed to be effective for tax years ending on or after the date the proposed regulations are published as final in the Federal Register.

Partnerships may, however, rely on the proposed regulations and the anticipated changes to the Form 8308 instructions for IRC Section 751(a) exchanges occurring on or after January 1, 2025, and before the date the proposed regulations are published as final regulations in the Federal Register.

Implications

The proposed regulations provide welcome relief to taxpayers and tax practitioners by proposing to remove the requirement to provide duplicate reporting of information already required to be reported on Schedules K-1 and can be relied upon before final regulations are issued.