IRS intends to withdraw basis shifting transaction rules – here’s what it means for your practice

On April 17, 2025, the IRS issued Notice 2025-23, announcing its intent to publish a notice of proposed rulemaking (NPRM) suggesting the removal of a set of rules that previously designated certain partnership-related basis-shifting transactions as transactions of interest (TOIs). It also includes withdrawing Notice 2024-52. This change provides immediate penalty relief for disclosures on Forms 8886 and 8918, but for most NATP members, it’s unlikely to change your day-to-day work.

Potential impacts

The IRS and Treasury intend to remove Reg. §1.6011-18. These regulations identified certain partnership-related party basis adjustment transactions as TOIs and subject to rules for reportable transactions. These identified transactions typically involved transactions within partnerships where one partner’s basis in property increased without a corresponding income recognition, involving related parties. These rules looked especially hard at transactions designed to create mismatches or distort tax attributes. To be subject to the rules, the basis increase must exceed $10 million for 2025 or $25 million for tax years before 2025 and during the six-year lookback period.

Examples include:

• Property distributed to a related partner that triggers a §734(b) adjustment
• Property distributed to a related partner whose basis in the property is increased under §732(b)
• Those electing basis increases under §732(d) within two years
• A transfer of partnership interest to a related party that triggers a §743(b) adjustment

Examples of these transactions can be found in the regulations the IRS and Treasury intend to remove.

Because of dollar amount thresholds in place that trigger the reporting requirement, most NATP members were not impacted by the original disclosure requirement.

Current impacts

Notice 2025-23 provides relief by waiving penalties under:

• Section 6707A(a) for participants in these transactions
• Sections 6707(a) and §6708 for material advisors

IRS Notice 2024-54, which outlined proposed additional regulations on these transactions, has been withdrawn.

What you should do

If your client base includes partnerships with low-valued assets, or none at all, you likely don’t need to take any action.

If you serve partnership clients impacted by, or have been preparing disclosures under the current TOI rules, you can now rely on Notice 2025-23. This means:

• You may pause those disclosures
• Penalties related to those transactions are no longer applicable
• Continue maintaining documentation in case future guidance is issued

NATP perspective

While this change represents a notable policy shift at the IRS level, it does not represent a major development for the vast majority of NATP members. However, we will continue to monitor whether the IRS will reintroduce new guidance in the future and keep you informed.

As always, NATP is here to support you with insight and clarity on regulatory changes, whether widespread or niche.