Tax Hot Topics
On May 20, the Treasury and IRS released final regulations (PDF - 278.71KB) that ease the timing of when a partnership must provide information to its partners on the amount of ordinary income or loss underlying a transferred partnership interest. These final regulations adopt the proposed regulations (PDF - 238.55KB) issued in August 2025 with no changes and remove the requirement for partnerships to provide Section 751(a) gain or loss information by Jan. 31 following the calendar year in which the sale or exchange occurred. For background on the proposed regulations, see our 2025 article.
Under the final regulations and instructions to revised Form 8308 (Report of a Sale or Exchange of Certain Partnership Interests), partnerships are allowed to provide transferor partners with the information required by Part IV of Form 8308 (the partner’s share of gain/loss required by Sections 751(a) and 1(h)(5) and (6)) via their Schedule K-1, and are not required to provide such information by Jan. 31 of the year following the Section 751(a) exchange.
However, partnerships are still required to provide Parts I, II and III of Form 8308 (generally identifying information) to both transferor and transferee partners by the later of Jan. 31 or 30 days after the partnership has received notice of the sale or exchange.
In summary, partnerships now have the following requirements when there is a Section 751(a) exchange:
- Provide Form 8308, Parts I, II and III, to transferee and transferor partners who participated in a Section 751(a) exchange by the later of Jan. 31 of the year following the exchange or 30 days after the partnership has received notice of the sale or exchange
- File Form 8308, including information on any gain from inventory or unrealized receivables required by Part IV of the form, as an attachment to the return for the year in which the sale of partnership interests occurred
- Provide transferor partners with Section 751(a) information as required under Part IV on Line 20 of their Schedule K-1
The final regulations apply to returns filed for taxable years ending on or after May 20, 2026. However, the preamble to the proposed regulations states that partnerships may rely on reporting under the proposed regulations for Section 751(a) exchanges occurring on or after Jan. 1, 2025, and before the date of publication of final regulations.
Grant Thornton insight:
The final regulations permanently relieve partnerships from the obligation to provide the computational Section 751(a) information by Jan. 31. This is a welcome change for taxpayers as it addresses the challenge many partnerships face in not having complete financial data available within one month of the tax year-end.
Nonetheless, the requirement for a partnership to provide and report the ordinary income/loss information remains, and diligence is needed in obtaining the full range of ordinary income/loss information (e.g., recapture income) for proper compliance with Section 751(a).
Additionally, although the regulations and Form 8308 instructions do not require the partnership to provide a Form 8308 with a completed Part IV to a transferor partner, it may be a helpful practice for the partnership to provide a copy of the Form 8308 to a transferor partner that is filed with Form 1065 and communicate to the transferor partner that the Part IV information on the Form 8308 is the same information as that provided on Line 20 of Schedule K-1.
Contacts:
Content disclaimer
This content provides information and comments on current issues and developments from Grant Thornton Advisors LLC and Grant Thornton LLP. It is not a comprehensive analysis of the subject matter covered. It is not, and should not be construed as, accounting, legal, tax, or professional advice provided by Grant Thornton Advisors LLC and Grant Thornton LLP. All relevant facts and circumstances, including the pertinent authoritative literature, need to be considered to arrive at conclusions that comply with matters addressed in this content.
For additional information on topics covered in this content, contact a Grant Thornton professional.
Grant Thornton LLP and Grant Thornton Advisors LLC (and their respective subsidiary entities) practice as an alternative practice structure in accordance with the AICPA Code of Professional Conduct and applicable law, regulations and professional standards. Grant Thornton LLP is a licensed independent CPA firm that provides attest services to its clients, and Grant Thornton Advisors LLC and its subsidiary entities provide tax and business consulting services to their clients. Grant Thornton Advisors LLC and its subsidiary entities are not licensed CPA firms.
Tax professional standards statement
This content supports Grant Thornton Advisors LLC’s marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person. It is not, and should not be construed as, accounting, legal, tax, or professional advice provided by Grant Thornton Advisors LLC. If you are interested in the topics presented herein, we encourage you to contact a Grant Thornton Advisors LLC tax professional. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein.
The information contained herein is general in nature and is based on authorities that are subject to change. It is not, and should not be construed as, accounting, legal, tax, or professional advice provided by Grant Thornton Advisors LLC. This material may not be applicable to, or suitable for, the reader’s specific circumstances or needs and may require consideration of tax and nontax factors not described herein. Contact a Grant Thornton Advisors LLC tax professional prior to taking any action based upon this information.
Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein; Grant Thornton Advisors LLC assumes no obligation to inform the reader of any such changes. All references to “Section,” “Sec.,” or “§” refer to the Internal Revenue Code of 1986, as amended.
Grant Thornton Advisors LLC and its subsidiary entities are not licensed CPA firms.
Trending topics
Share with your network
Share