Treasury Announces Crackdown on Certain Partnership Transactions

Regulations
Published
Contact: J.P. Delmore
jpdelmore@nahb.org
AVP, Government Affairs
(202) 266-8412

The Department of Treasury and Internal Revenue Service (IRS) announced a crackdown — and new disclosure requirements — on “basis shifting” transactions used by partnerships that share common ownership. The Biden administration estimates this move could generate an additional $50 billion in tax revenue over the next decade.

“Related-party basis shifting” is where multiple partnerships sharing a common ownership interest trade assets to maximize depreciation benefits, in some cases resulting in the same asset being depreciated repeatedly. 

In making this announcement, the IRS is claiming basis shifting is tax evasion. The foundation of this decision is an existing rule known as “economic substance,” where a transaction must have a purpose beyond tax avoidance. The interpretation that basis shifting is illegal is not without controversy, with some tax lawyers arguing basis shifting is permitted under the tax code and a legitimate tax planning tool. It is possible the IRS actions will be challenged in court.

The IRS plans to publish guidance for accountants and tax lawyers outlining what transactions the agency views as fraudulent, as well as the IRS’ intention to audit partnerships using basis shifting. As such, the IRS plans to propose new regulations to require large partnerships to provide more detail to the IRS about their use of basis shifting. 

NAHB recommends its members consult with their accountant or other tax professional for more information. 

NAHB is providing this information for general information only. This information does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind nor should it be construed as such.

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