Proposed Rule2026-04432
Removal of Final Regulations Identifying Certain Partnership Related-Party Basis Adjustment Transactions as Transactions of Interest
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Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
March 6, 2026
Issuing agencies
Treasury DepartmentInternal Revenue Service
Abstract
This document proposes to remove regulations that identify certain partnership related-party basis adjustment transactions and substantially similar transactions as transactions of interest, a type of reportable transaction. The regulations would affect participants in these transactions as well as material advisors.
Full Text
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<title>Federal Register, Volume 91 Issue 44 (Friday, March 6, 2026)</title>
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[Federal Register Volume 91, Number 44 (Friday, March 6, 2026)]
[Proposed Rules]
[Pages 11003-11006]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-04432]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG-108921-25]
RIN 1545-BR57
Removal of Final Regulations Identifying Certain Partnership
Related-Party Basis Adjustment Transactions as Transactions of Interest
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking.
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SUMMARY: This document proposes to remove regulations that identify
certain partnership related-party basis adjustment transactions and
substantially similar transactions as transactions of interest, a type
of reportable transaction. The regulations would affect participants in
these transactions as well as material advisors.
DATES: Electronic or written comments and requests for a public hearing
must be received by April 6, 2026.
ADDRESSES: Commenters are strongly encouraged to submit public comments
electronically via the Federal eRulemaking Portal at <a href="https://www.regulations.gov">https://www.regulations.gov</a> (indicate IRS and REG-108921-25) by following the
online instructions for submitting comments. Requests for a public
hearing must be submitted as prescribed in the ``Comments and Requests
for a Public Hearing'' section. Once submitted to the Federal
eRulemaking Portal, comments cannot be edited or withdrawn. The
Department of the Treasury (Treasury Department) and the IRS will
publish for public availability any comments submitted to the IRS's
public docket. Send paper submissions to: CC:PA:01:PR (REG-108921-25),
Room 5503, Internal Revenue Service, P.O. Box 7604, Ben Franklin
Station, Washington, DC 20044.
FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations,
Elizabeth V. Zanet of the Office of the Associate Chief Counsel
(Passthroughs, Trusts, and Estates), (202) 317-5279 (not a toll-free
number); concerning submissions of comments and requests for a public
hearing, the Publications and Regulations Section at (202) 317-6901
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Authority
This document proposes to remove Sec. 1.6011-18 (Basis Shifting
TOI Regulations) from 26 CFR part 1 (Income Tax Regulations). The Basis
Shifting TOI Regulations were issued under section 6011 of the Internal
Revenue Code (Code) pursuant to the authority granted to the Secretary
of the Treasury or the Secretary's delegate (Secretary) under sections
6001, 6011(a), 6111, 6112(a), 6707A(c)(1), and 7805(a) of the Code.
Background
On June 18, 2024, the Treasury Department and the IRS published a
notice of proposed rulemaking (REG-124593-23) in the Federal Register
(89 FR 51476) identifying certain partnership related-party basis
adjustment transactions and substantially similar transactions as
transactions of interest, a type of reportable transaction (Basis
Shifting TOI Proposed Regulations). On January 14, 2025, the Treasury
Department and the IRS finalized the Basis Shifting TOI Proposed
Regulations with modifications in response to comments with the
publication of final regulations (Basis Shifting TOI Regulations) (TD
10028) in the Federal Register (90 FR 2958).
Since their publication, taxpayers and their material advisors have
criticized the Basis Shifting TOI Regulations at Sec. 1.6011-18 as
imposing complex and burdensome compliance obligations on businesses.
The Treasury Department and the IRS considered these public comments
and determined that the Basis Shifting TOI Regulations may be
appropriate for removal.
On April 17, 2025, the Treasury Department and the IRS published
Notice 2025-23 (2025-19 IRB 1428). Notice 2025-23 announced that the
Treasury Department and the IRS intended to publish a notice of
proposed rulemaking proposing the removal of the Basis Shifting TOI
Regulations from the Income tax Regulations. Notice 2025-23 further
stated that taxpayers and their material advisors can rely on the
notice until the Treasury Department and the IRS removed the Basis
Shifting TOI Regulations from the Income Tax Regulations. Notice 2025-
23 additionally stated that the IRS will (i) waive penalties under
section 6707A(a) for participants in transactions identified in the
Basis Shifting TOI Regulations, and (ii) waive penalties under sections
6707(a) and 6708 of the Code for material advisors to transactions
identified in the Basis Shifting TOI Regulations.
Explanation of Provisions
Consistent with Notice 2025-23, this notice of proposed rulemaking
(Removal NPRM) proposes to remove the Basis Shifting TOI Regulations
from the Income Tax Regulations.
Proposed Effective Date and Applicability Date
The proposed removal of the Basis Shifting TOI Regulations would be
effective on the date that the Treasury Department and the IRS publish
final regulations (Forthcoming Final Regulations). The Treasury
Department and the IRS intend that the Treasury decision adopting the
Forthcoming Final Regulations will provide that participants and
material advisors may treat the removal of the Basis Shifting TOI
Regulations as occurring on January 14, 2025, which is the
applicability date of the Basis Shifting TOI Regulations. Thus,
participants and material advisors will be able to treat the Basis
Shifting TOI Regulations as never having taken effect. See section
7805(b)(7). Consistent with Notice 2025-23, participants and material
advisors may continue relying on that notice until the Treasury
Department and IRS finalize the Removal NPRM with the publication of
the Forthcoming Final Regulations.
[[Page 11004]]
Special Analyses
I. Executive Order 12866, 13563, and 14192
Executive Orders 12866 and 13563 direct agencies to assess costs
and benefits of available regulatory alternatives and, if regulation is
necessary, to select regulatory approaches that maximize net benefits
(including potential economic, environmental, public health and safety
effects, distributive impacts, and equity). Executive Order 13563
emphasizes the importance of quantifying both costs and benefits,
reducing costs, harmonizing rules, and promoting flexibility. This rule
is expected to be an Executive Order 14192 deregulatory action.
These proposed regulations have been designated by the Office of
Management and Budget's (OMB's) Office of Information and Regulatory
Affairs (OIRA) as subject to review under Executive Order 12866
pursuant to the Memorandum of Agreement of July 4, 2025 (MOA) between
the Department of the Treasury (Treasury Department) and the OMB
regarding review of tax regulations. OIRA has determined that this
notice of proposed rulemaking (Removal NPRM) is significant and subject
to review under Executive Order 12866 and section 1(c) of the MOA.
Accordingly, the Removal NPRM has been reviewed by OMB.
A. Need for Regulation
A transaction of interest (TOI) is a type of reportable
transaction. On January 14, 2025, the Treasury Department and the IRS
published Sec. 1.6011-18 (Basis Shifting TOI Regulations), which
require taxpayers and material advisors to report information
identifying certain partnership related-party basis adjustment
transactions. Taxpayers and their material advisors have criticized the
Basis Shifting TOI Regulations as imposing complex and burdensome
compliance obligations on businesses. The Treasury Department and the
IRS received many public comments requesting that the Basis Shifting
TOI Regulations be removed. The Treasury Department and the IRS
considered the public comments and determined that the Basis Shifting
TOI Regulations may be appropriate for removal.
On April 17, 2025, the Treasury Department and the IRS published
Notice 2025-23 (2025-19 IRB 1428), which announced that the Treasury
Department and the IRS intended to publish a notice of proposed
rulemaking removing the Basis Shifting TOI Regulations.
Consistent with that intention, this notice of proposed rulemaking
(Removal NPRM) proposes to remove the Basis Shifting TOI Regulations
from 26 CFR part 1 (Income Tax Regulations). The proposed removal of
the Basis Shifting TOI Regulations would be effective on the date that
the Treasury Department and the IRS publish final regulations
(Forthcoming Final Regulations). The Treasury Department and the IRS
intend that the Treasury decision adopting the Forthcoming Final
Regulations will provide that participants and material advisors may
treat the removal of the Basis Shifting TOI Regulations as occurring on
January 14, 2025, which is the applicability date of the Basis Shifting
TOI Regulations. Thus, participants and material advisors will be able
to treat the Basis Shifting TOI Regulations as never having taken
effect. See section 7805(b)(7) of the Internal Revenue Code (Code).
B. The Statute and the Removal NPRM
Under subchapter K of chapter 1 of the Code, a distribution by a
partnership of the partnership's property (partnership property) or a
transfer of an interest in a partnership (partnership interest) may
result in an adjustment to the basis of the distributed property,
partnership property, or both.
A distribution of partnership property may result in an adjustment
to the basis of the distributed property under sections 732(b) or (d)
of the Code. In the case of a distribution of partnership property to a
partner by a partnership with an election under section 754 of the Code
(section 754 election), or with respect to which there is a substantial
basis reduction as described in section 734(d) of the Code, the
distribution may also result in an adjustment to the basis of the
partnership's remaining property under section 734(b).
If a partnership interest is transferred by sale or exchange or on
the death of a partner, and the partnership either has a section 754
election in effect or has a substantial built-in loss with respect to
the transfer of the partnership interest as described in section 743(d)
of the Code, the transfer may result in an adjustment to the basis of
partnership property under section 743(b) with respect to the
transferee partner.
As discussed above, the Basis Shifting TOI Regulations identify
certain partnership related-party transactions and substantially
similar transactions that result in basis adjustments under sections
732(b), 732(d), 734(b), and 743(b) as transactions of interest, a type
of reportable transaction with disclosure requirements.
The purpose of the Basis Shifting TOI Regulations is to provide
information to the IRS that could help identify abusive basis shifting
transactions. However, taxpayers and their material advisors have
criticized the Basis Shifting TOI Regulations as imposing complex,
burdensome, and retroactive disclosure obligations on many ordinary-
course and tax-compliant business activities, creating costly
compliance obligations and uncertainty for businesses. The Treasury
Department and the IRS agree that the compliance burden of the Basis
Shifting TOI Regulations, as estimated below, is substantial and likely
exceeds the benefits of the Basis Shifting TOI Regulations.
Once the Removal NPRM is finalized, partnership related-party
transactions and substantially similar transactions that result in
basis adjustments would no longer be treated as transactions of
interest. Thus, participants and material advisors to these
transactions would no longer have the associated disclosure
requirements.
C. Baseline
The Treasury Department and the IRS have assessed the benefits and
costs of these proposed regulations once finalized (as the Forthcoming
Final Regulations) relative to a no-action baseline that reflects the
anticipated Federal income tax-related behavior of taxpayers under the
Basis Shifting TOI Regulations.
D. Economic Effects
1. Participants--Forms 8886
Participants in transactions of interest must report their
participation in the transaction on a Form 8886, Reportable Transaction
Disclosure Statement. The Treasury Department and the IRS estimate that
the aggregate costs of filing Forms 8886 under the Basis Shifting TOI
Regulations each year equal the product of (1) the number of affected
basis adjustments, (2) the average number of participants per basis
adjustment, and (3) the average cost of filing a Form 8886 per
participant.
a. Total Number of Basis Adjustments Affected
Based on analysis of partnership tax return data, the Treasury
Department and the IRS have estimated that 10,000 basis adjustments
would be reported in the absence of the Forthcoming Final Regulations.
Tax return data indicate as many as 12,000 basis adjustments will be
over the numeric thresholds in the Basis Shifting TOI Regulations each
year under sections 732(b), 732(d), 734(b), and 743(b). The Treasury
Department and the IRS expect 10,000 of the 12,000
[[Page 11005]]
basis adjustments to generate reporting by participants. The Treasury
Department and the IRS have determined that most participants would
choose to report any basis adjustment over the numeric thresholds in
the Basis Shifting TOI Regulations rather than spending additional time
and resources on determining whether the underlying transaction
satisfied the other requirements of the regulations. For instance, if
there was a question as to whether the underlying transaction satisfied
the related party rules under sections 267 and 707 of the Code, the
Treasury Department and the IRS have determined that a participant
would likely choose to disclose the basis adjustment rather than
spending additional time and resources on the nuanced related party
analysis.
b. Average Number of Participants per Basis Adjustment
Under the Basis Shifting TOI Regulations, the type of basis
adjustment determines the number of participants. For example, a basis
adjustment under section 732(b) would have two participants, the
distributee partner and the distributing partnership. In contrast, a
basis adjustment under section 743(b) would have three participants,
the transferor partner, the transferee partner, and the partnership.
The Treasury Department and the IRS have therefore estimated that each
basis adjustment would have 2.5 participants on average.
c. Average Cost of Filing a Form 8886
The IRS's Research, Applied Analytics, and Statistics division
(RAAS) estimates that the burden of filing Form 8886 is approximately
10 hours, 16 minutes for recordkeeping, 4 hours, 50 minutes for
learning about the law or the form, and 6 hours, 25 minutes for
preparing, copying, assembling, and sending the form to the IRS, for a
total of 21 hours and 31 minutes. In the Special Analyses of the Basis
Shifting TOI Regulations, RAAS estimated that the appropriate wage rate
was $102.00 (2022 dollars, equivalent to $109.33 in 2024 dollars) per
hour. However, one commenter indicated that a better estimate is
approximately $177.29 (2022 dollars, equivalent to $190.03 in 2024
dollars) per hour, as many affected individuals may seek specialists
with higher hourly fees. The Treasury Department and the IRS have
accepted the commenter's suggested wage. Therefore, the estimated
burden of filing Form 8886 equals $4,088.81 (2024 dollars) (that is,
$190.03 x 21 hours and 31 minutes).
d. Summary of Yearly Economic Effects Related to Filing Form 8886
Based on the above, the Treasury Department and the IRS estimate
that the aggregate costs of filing Form 8886 under the Basis Shifting
TOI Regulations are approximately $102 million per year (2024 dollars)
(that is, the product of (i) 10,000 basis adjustments, (ii) 2.5
participants per basis adjustment, and (iii) $4,088.81 average filing
burden).
2. Material Advisors--Forms 8918
Material advisors to transactions of interests identified under the
Basis Shifting TOI Regulations must file Form 8918, Material Advisor
Disclosure Statement. The Treasury Department and the IRS have assumed
that the aggregate costs of filing Forms 8918 under the Basis Shifting
TOI Regulations each year equal the product of (1) the number of
affected basis adjustments, (2) the average number of material advisors
per basis adjustment, and (3) the average cost of filing a Form 8918
per advisor.
a. Total Number of Basis Adjustments Affected
For the same reasons discussed in Section IV.A.1., the Treasury
Department and the IRS have estimated that 10,000 basis adjustments
would be reported under the Basis Shifting TOI Regulations.
b. Average Number of Participants per Basis Adjustment
The Treasury Department and the IRS estimate that each transaction
that results in a reported basis adjustment will have at least one
professional services firm that advises on the tax implications of the
transaction (for example, a law firm or an accounting firm) and at
least one accounting firm that prepares the relevant tax returns. The
Treasury Department and the IRS therefore estimate that each
transaction that results in a reported basis adjustment will have 2.2
material advisors on average.
c. Average Cost of Filing a Form 8918
RAAS estimates that the burden of filing Form 8918 is approximately
8 hours, 7 minutes for recordkeeping, 3 hours, 4 minutes for learning
about the law or the form, and 3 hours, 20 minutes for preparing,
copying, assembling, and sending the form to the IRS, for a total of 14
hours and 31 minutes. If the appropriate wage rate is the same as Form
8886 ($190.03 (2024 dollars) per hour), the burden of filing Form 8918
is $2,758.60 (2024 dollars).
d. Summary of Yearly Economic Effects Related to Filing Form 8918
Based on the above, the Treasury Department and the IRS estimate
that the aggregate costs of filing Form 8918 under the Basis Shifting
TOI Regulations equals $61 million per year (2024 dollars) (that is,
the product of (i) 10,000 basis adjustments, (ii) 2.2 material advisors
per basis adjustment, and (iii) $2,758.60 average filing burden).
3. Economic Effects, in Summary
In total, the annual burden estimate related to the Basis Shifting
TOI Regulations is $163 million (that is, $102 million per year with
respect to Form 8886, plus $61 million per year with respect to Form
8918). The Treasury Department and the IRS do not anticipate any other
material economic effects of the Forthcoming Final Regulations beyond
the filing burden reduction. Therefore, the Treasury Department and the
IRS estimate that the aggregate economic effects of the Forthcoming
Final Regulations would be a reduction in filing burdens by $163
million. The Treasury Department and the IRS request comments on the
magnitude of this estimate.
II. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) generally
requires that a Federal agency obtain OMB approval before collecting
information from the public, whether such collection of information is
mandatory, voluntary, or required to obtain or retain a benefit. An
agency may not conduct or sponsor, and a person is not required to
respond to, a collection of information unless the collection of
information displays a valid control number. These proposed regulations
(Removal NPRM), which propose removing Sec. 1.6011-18 (Basis Shifting
TOI Regulations) from 26 CFR part 1 (Income Tax Regulations), do not
contain a collection of information and, in fact, remove what would
otherwise have been a collection of information requirement in the
Basis Shifting TOI Regulations.
III. Regulatory Flexibility Act
The Secretary of the Treasury (Secretary) hereby certifies that
these proposed regulations (Removal NPRM) will not have a significant
economic impact on a substantial number of small entities under the
Regulatory Flexibility Act (RFA) (5 U.S.C. chapter 6). This
certification is based on IRS data that allowed an estimate of the
percentage of partnerships required to file disclosure statements under
the proposed
[[Page 11006]]
regulations that the Department of the Treasury (Treasury Department)
and the IRS published on June 18, 2024 (Basis Shifting TOI Proposed
Regulations) and the final regulations published on January 14, 2025
(Basis Shifting TOI Regulations). The data indicated that the
percentage of partnerships that would have a disclosure obligation
under the Basis Shifting TOI Proposed Regulations or Basis Shifting TOI
Regulations and considered to be small business for purposes of the RFA
would be low. Accordingly, the removal of the disclosure requirements
under the Removal NPRM is not anticipated to have a significant
economic impact on a substantial number of small entities.
The RFA discussion in the Basis Shifting TOI Proposed Regulations
referenced data provided by IRS's Research, Applied Analytics, and
Statistics (RAAS) division, which estimated the percentage of
partnerships with gross receipts or sales of $25 million or less that
might have been subject to the disclosure obligations as a result of a
basis adjustment under section 743(b) of more than $5 million during
the taxable year. That data suggested that of all partnerships with
related parties and a basis adjustment under section 743(b) of more
than $5 million during the taxable year, approximately two-thirds of
the partnerships would have gross receipts or sales of $25 million or
less and approximately one-third would have gross receipts or sales of
$25 million or more. The Treasury Department and the IRS determined
that the data did not indicate that the Basis Shifting TOI Proposed
Regulations would have a significant economic impact on a substantial
number of small entities because not all partnerships with gross
receipts or sales of $25 million or less are considered small
businesses (see 13 CFR 121.201), and the data did not provide
information on whether the partnerships with gross receipts or sales of
$25 million or less were part of larger enterprises.
The RFA discussion in the Basis Shifting TOI Regulations referenced
data from the IRS that indicated that, in the case of partnerships with
gross assets of less than $25 million that reported basis adjustments
under section 734(b) or section 743(b) for the taxable year, the
average basis adjustment was less than the applicable threshold amount
of $10 million or more. Thus, the Treasury Department and the IRS
anticipated that many partnerships with gross assets of less than $25
million would not be subject to the disclosure requirements. Further,
the data indicated that partnerships with gross assets of more than $25
million that reported basis adjustments under section 734(b) or section
743(b) for the taxable year that met the applicable threshold amount of
$10 million or more represented less than one percent of all
partnerships that file tax returns for the taxable year.
Pursuant to section 7805(f), this notice of proposed rulemaking has
been submitted to the Chief Counsel for the Office of Advocacy of the
Small Business Administration for comment on its impact on small
business.
IV. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates Reform Act of 1995 requires
that agencies assess anticipated costs and benefits and take certain
other actions before issuing a final rule that includes any Federal
mandate that may result in expenditures in any one year by a State,
local, or Tribal government, in the aggregate, or by the private
sector, of $100 million (updated annually for inflation). These
proposed rules do not include any Federal mandate that may result in
expenditures by State, local, or Tribal governments, or by the private
sector in excess of that threshold.
V. Executive Order 13132: Federalism
Executive Order 13132 (Federalism) prohibits an agency from
publishing any rule that has federalism implications if the rule either
imposes substantial, direct compliance costs on State and local
governments, and is not required by statute, or preempts State law,
unless the agency meets the consultation and funding requirements of
section 6 of Executive Order 13132. These proposed regulations do not
have federalism implications and do not impose substantial direct
compliance costs on State and local governments or preempt State law
within the meaning of Executive Order 13132.
Comments and Requests for a Public Hearing
Before these proposed regulations are adopted as final regulations,
consideration will be given to comments that are submitted timely to
the IRS as prescribed in the preamble under the ADDRESSES section. All
comments and a plain language summary of the proposed rule will be made
available at <a href="https://www.regulations.gov">https://www.regulations.gov</a> or upon request. A public
hearing will be scheduled if requested in writing by any person that
timely submits electronic or written comments. If a public hearing is
scheduled, notice of the date, time, and place for the public hearing
will be published in the Federal Register.
Statement of Availability of IRS Documents
Notices cited in this document are published in the Internal
Revenue Bulletin and are available from the Superintendent of
Documents, U.S. Government Publishing Office, Washington, DC 20402, or
by visiting the IRS website at <a href="https://www.irs.gov">https://www.irs.gov</a>.
Drafting Information
The principal authors of this notice of proposed rulemaking are
personnel of the Office of the Associate Chief Counsel (Passthroughs,
Trusts, and Estates). However, other personnel from the Treasury
Department and the IRS participated in its development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations
Accordingly, the Treasury Department and the IRS propose to amend
26 CFR part 1 as follows:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 is amended by removing
the entry for Sec. 1.6011-18 to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Sec. 1.6011-18 [Removed]
0
Par. 2. Section 1.6011-18 is removed.
Frank J. Bisignano,
Chief Executive Officer.
[FR Doc. 2026-04432 Filed 3-5-26; 8:45 am]
BILLING CODE 4831-GV-P
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