IRS Cracking Down On "Basis-Shifting" In Related-Party Partnership Transactions

Highlights

• The U.S. Department of the Treasury and IRS proposed guidance addressing certain related-party basis-shifting transactions that, if implemented, could significantly limit the flexibility afforded to partnerships through previously accepted Internal Revenue Code-compliant tax planning.
• Taxpayers should consider submitting comments on the proposed guidance, and significant challenges to the proposed basis-shifting regulations are expected.
• Once finalized, the proposed regulations will impose a burdensome reporting requirement for past transactions.
• The IRS continues its broad interpretation and application of the economic substance doctrine even to transactions to which it has not applied and will apply strict liability penalties.