New Revenue Ruling Aims To Root Out "Basis-Shifting Transactions"

On June 17, 2024, the IRS published Revenue Ruling 2024-14 as part of a package it says will raise an additional $50 billion dollars of income taxes over the next decade from "basis-shifting transactions." In addition to the Revenue Ruling, the package includes three proposed regulations affecting basis adjustments. The Revenue Ruling seeks to curtail basis-shifting transactions between related entities by applying the economic substance doctrine to situations where the non-tax justifications for transactions are insubstantial when compared to the tax benefits associated with the transactions.

The Revenue Ruling illustrates three separate scenarios involving basis adjustments that the IRS ultimately considers to be improper basis-shifting transactions. Each of the three scenarios involves a series of transactions where taxpayers create disparities between inside and outside basis, "with and eye towards" taking advantage of the basis reallocation rules.