Section 751 Property
Generally, partnerships that have Section 751 property, such as unrealized receivables or inventory property, are required to provide information to the Internal Revenue Service (IRS) when a sale or exchange of partnership interests occurs between partners. This information is also reported to the partners engaged in the sale or exchange.
A Section 751 exchange occurs when a transferor and transferee are parties to a sale or exchange of an interest in the partnership (or portion thereof) for money or other property, and a portion of the transferor’s interest in the partnership is attributable to Section 751 property.
What is Form 8308?
Treasury Regulation Section 1.6050K-1(a)(2) provides that partnerships are required to report each Section 751 exchange on Form 8308, which is filed as an attachment to Form 1065, U.S. Return of Partnership Income. Form 8308 is due at the time of filing for the partnership return, including extensions.
In addition, Treasury Regulation Section 1.6050K-1(c)(1) provides that each partnership that is required to file Form 8308 must furnish a statement to the transferor and transferee by the later of (a) January 31 of the year following the calendar year in which the Section 751(a) exchange occurred, or (b) 30 days after the partnership has received notice of the exchange. Form 8308 is the statement to be provided to the transferor and transferee partners.
Section 6722 may impose a penalty for failure to furnish correct Forms 8308 to the partners on or before the required date, and for any failure to include all the information shown on the statement, or for reporting incorrect information.
For tax years prior to 2023, Form 8308 was a simple statement documenting the names, addresses, and tax identification numbers of the transferor partner and the transferee partner, and the date of the sale or exchange between them.
Revisions to 2023 Form 8308
The IRS has now expanded Form 8308 for tax years beginning on or after January 1, 2023. On the new version of the form (released in October 2023), a new Part IV requires a partnership to report, among other items, the partnership’s and the transferor partner’s share of Section 751 gain or loss, collectibles gain under Section 1(h)(5), and unrecaptured Section 1250 gain under Section 1(h)(6).
Taxpayers and tax professionals have expressed concerns to the Treasury Department and the IRS that many partnerships will be unable to furnish the information required in Part IV of the 2023 Form 8308 by the January 31, 2024, due date. Often, this information is not available until the partnership’s tax return is prepared and ready to be filed.
Notice 2024-19 Grants Penalty Relief
In response, the IRS issued Notice 2024-19 to grant relief from penalties under Section 6722 for failures to furnish correct payee statements solely for failure of a partnership with Section 751 property to furnish Part IV of Form 8308 by the due date specified in Treasury Regulation Section 1.6050K-1(c)(1).
This relief only applies if:
- The partnership furnishes to the transferor and transferee a correct copy of Parts I, II and III of Form 8308 (or a statement that includes the same information) by the later of (a) January 31, 2024, or (b) 30 days after the partnership is notified of the Section 751(a) exchange.AND
- The partnership furnishes a correct copy of the complete Form 8308 (including Part IV) to each transferor and transferee by the later of (a) the due date (including extensions) of the partnership’s 2023 Form 1065 or (b) 30 days after the partnership is notified of the Section 751(a) exchange.
Your Guide Forward
For additional information about how this guidance may impact your partnership, please contact a Cherry Bekaert team member.
Related Guidance
IRS Grants Penalty Relief for Certain Late Filed Returns for Tax Years 2019 and 2020 (Notice 2022-36)
Notice 2021-13 Penalty Relief for Partnerships
