Final Regs Modify Partnership Reporting Requirements for Unrealized Receivables

(Parker Tax Publishing May 2026)

The IRS issued final regulations that modify information reporting obligations with respect to sales or exchanges of interests in partnerships owning inventory or unrealized receivables (i.e., Code Sec. 751(a) assets). Specifically, the final regulations remove Reg. Sec. 1.6050K-1(c)(2), which required partnerships to furnish to a transferor partner the information necessary to report a Code Sec. 751(a) exchange on the transferor partner's income tax return as required by Reg. Sec. 1.751-1(a)(3). T.D. 10048.

Background

Generally, under Code Sec. 741, the sale of an interest in a partnership is treated as the sale of a capital asset. However, special rules apply where there is an exchange described in Code Sec. 751(a). Under Code Sec. 751(a), the amount of any money, or the fair market value of any property, received by a transferor partner in exchange for all or a part of the transferor partner's interest in the partnership attributable to (1) unrealized receivables of the partnership, or (2) inventory items of the partnership, is considered an amount realized from the sale or exchange of property other than a capital asset.

Reg. Sec. 1.6050K-1(a)(1) generally requires a partnership to make a separate return using Form 8308, Report of a Sale or Exchange of Certain Partnership Interests, for each Code Sec. 751(a) exchange. Code Sec. 6050K(b) requires the partnership to provide the required information to transferors and transferees that are parties to a Code Sec. 751(a) exchange by January 31 of the year following the calendar year in which the Code Sec. 751(a) exchange occurs. However, prior to its modification by these final regulations, Reg. Sec. 1.6050K-1(c)(1) provided that each partnership that is required to file a Form 8308 must furnish a statement to the transferor and transferee by the later of (1) January 31 of the year following the calendar year in which the Code Sec. 751(a) exchange occurs, or (2) 30 days after the partnership receives notice of the exchange as specified under Code Sec. 6050K(c) and Reg. Sec. 1.6050K-1(e). A partnership generally must use a copy of the completed Form 8308 as the required statement.

In addition, prior to its removal by these final regulations, Reg. Sec. 1.6050K-1(c)(2) required a partnership to furnish to a transferor partner the information necessary for the transferor to make the transferor partner's required statement in Reg. Sec. 1.751-1(a)(3). Reg. Sec. 1.751-1(a)(3) requires a transferor partner in a Code Sec. 751(a) exchange to submit with the transferor partner's income tax return for the tax year in which the sale or exchange occurs a statement separately stating the date of the sale or exchange, the amount of any gain or loss attributable to Code Sec. 751 property, and the amount of any gain or loss attributable to capital gain or loss on the sale of the partnership interest.

As a result of subsequent changes to Part IV of Form 8308, a partnership's obligation to report to a transferor the gain or loss attributable to a Code Sec. 751(a) exchange was effectively accelerated to January 31 of the year following the Code Sec. 751(a) exchange, even though Reg. Sec. 1.751-1(a)(3) generally does not require the transferor partner to report such information to the IRS until the transferor partner files the partner's income tax return for the tax year in which the sale or exchange occurs, the due date of which can be several months after January 31. Practitioners complained to the IRS that many partnerships were unable to furnish the information required in Part IV of the Form 8308 to transferors and transferees by the January 31 due date because, in many cases, partnerships do not have all the information required by Form 8308, Part IV, by January 31 of the year following the calendar year in which the Code Sec. 751(a) exchange occurred.

In Notice 2024-19, the IRS provided limited relief from penalties for partnerships that failed to furnish a completed Part IV of Form 8308 by January 31, 2024, for Code Sec. 751(a) exchanges during calendar year 2023. In Notice 2025-2, the IRS extended the relief provided in Notice 2024-19 for partnerships that failed to complete Part IV of Form 8308 by January 31, 2025, with respect to Code Sec. 751(a) exchanges occurring during calendar year 2024.

Proposed Regulations and Changes to Form 8308 Instructions

In August of 2025, the IRS issued proposed regulations in REG-108822-25 that proposed to remove Reg. Sec. 1.6050K-1(c)(2). The proposed regulations also proposed to modify Reg. Sec. 1.6050K-1(c)(1) to remove 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." Partnerships were permitted to rely on the proposed regulations, and the description of the anticipated changes to the instructions to Form 8308 contained in the preamble to the proposed regulations, with respect to Code Sec. 751(a) exchanges occurring on or after January 1, 2025, and before the date the regulations were published as final regulations in the Federal Register.

In the preamble to the proposed regulations, the IRS explained that it would update the instructions for Form 8308 to provide that only the information in Parts I, II, and III is required by the due dates of Code Sec. 6050K. The IRS also stated that the IRS would update the Instructions for Form 8308 to make clear that a partnership must file a completed Form 8308, including Part IV, as an attachment to its Form 1065. The instructions to Form 8308 were updated on November 5, 2025 to make these changes.

T.D. 10048

On May 20, the IRS issued final regulations that remove Reg. Sec. 1.6050K-1(c)(2). The final regulations adopt the proposed regulations without change.

As a result of the final regulations, and the associated changes in the instructions to Form 8308, a partnership is required to furnish the information reported on only Parts I, II, and III of Form 8308, or a statement that includes the same information, to the transferor and transferee in a Code Sec. 751(a) exchange by the later of (1) January 31 of the year following the calendar year in which the Code Sec. 751(a) exchange occurred, or (2) 30 days after the partnership has received notice of the exchange as specified under Code Sec. 6050K and Reg. Sec. 1.6050K-1. The requirement for a partnership to file the completed Form 8308, including Part IV, as an attachment to its Form 1065, for the tax year of the partnership that includes the last day of the calendar year in which the Code Sec. 751(a) took place, is unchanged by the final regulations.

The final regulations remove Reg. Sec. 1.6050K-1(c)(2) effective on May 20, 2026, the date of publication of the final regulations in Federal Register. The amendment to Reg. Sec. 1.6050K-1(c)(1)(i) applies to returns filed for tax years ending on or after May 20, 2026.

For a discussion of sales or exchanges of interests in partnerships owning inventory or unrealized receivables, see Parker Tax ¶ 27,530. For a discussion of the reporting requirements for sales or exchanges of partnership interests, see Parker Tax ¶27,590.

Parker Tax Pro Library - An Affordable Professional Tax Research Solution. www.parkertaxpublishing.com

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.