IRS Aims To End Abusive Basis-Shifting Transactions

The IRS has issued new guidance to prevent related parties from using partnerships to achieve tax benefits through basis-shifting among assets.

The IRS recently released a guidance package aimed at preventing "basis-shifting" transactions through partnerships owned by related parties. These transactions involve related taxpayers transferring basis among assets to achieve a tax benefit, without any meaningful business purpose. The tax benefit being sought is typically increased or accelerated depreciation deductions or increased loss or decreased gain on sale. This practice allows closely related parties to reduce their overall tax liabilities.

These transactions exploit a set of highly technical partnership rules that provide for basis adjustments to partnership property in an attempt to equalize the "outside" basis of partners in their partnership interests with the "inside" basis of partnership property. These adjustment rules are triggered upon the transfer