Bulletin No. 2024–28

HIGHLIGHTS

OF THIS ISSUE





Bulletin No. 2024–28

July 8, 2024

These synopses are intended only as aids to the reader in

identifying the subject matter covered. They may not be

relied upon as authoritative interpretations.

EXEMPT ORGANIZATIONS

Announcement 2024-28, page 39.

Revocation of IRC 501(c)(3) Organizations for failure to

meet the code section requirements. Contributions made to

the organizations by individual donors are no longer deductible under IRC 170(b)(1)(A).

EMPLOYEE PLANS

Notice 2024-55, page 31.

Notice 2024-55 provides guidance in the form of questions and answers with respect to sections 115 and 314

of Division T of the Consolidated Appropriations Act, 2023,

Pub. L. 117-328, 136 Stat. 4459 (2022), known as the

SECURE 2.0 Act of 2022 (SECURE 2.0 Act). Section 115

of the SECURE 2.0 Act adds section 72(t)(2)(I) to the Internal Revenue Code (Code), which permits a distribution from

an applicable eligible retirement plan to an individual for

purposes of meeting unforeseeable or immediate financial

needs relating to necessary personal or family emergency

expenses. Section 314 of the SECURE 2.0 Act adds section 72(t)(2)(K) to the Code, which permits a distribution

from an applicable eligible retirement plan to a domestic

abuse victim if made during the 1-year period beginning

on the date on which the individual is a victim of domestic

abuse by a spouse or domestic partner. These two types of

distributions are includible in gross income but are not subject to the 10 percent additional tax under section 72(t)(1).

INCOME TAX

Notice 2024-54, page 24.

This notice announces that the Department of the Treasury

and the Internal Revenue Service intend to issue two sets

of proposed regulations that would provide special rules

for certain transactions under §§ 732, 734, 743, 755, and

Finding Lists begin on page ii.

1502 of the Internal Revenue Code. First, proposed regulations under §§ 732, 734, 743, and 755 would provide

special rules for the cost recovery of positive basis adjustments or the ability to take positive basis adjustments

into account in computing gain or loss on the disposition

of basis adjusted property following certain transactions.

Second, proposed regulations under § 1502 would provide

rules to clearly reflect the taxable income and tax liability

of a consolidated group whose members own interests in

a partnership.

REG-124593-23, page 40.

REG-124593-23 is a notice of proposed rulemaking (NPRM)

that identifies certain partnership transactions as “transactions of interest,” a type of reportable transaction. The

transactions include either the distribution of partnership

property when the partnership has two or more related

partners, or the transfer of a partnership interest in a nonrecognition transaction when the transferor is related to the

transferee or the transferee is related to one or more of

the partners. The transactions of interest involve related

parties as defined under section 267(b) (without regard to

section 267(c)(3)) or section 707(b)(1), a transfer of a partnership interest or distribution of partnership property, and

a resulting aggregate increase to the basis of partnership

property or distributed property under sections 732(b) or

(d), 734(b), or 743(b) for the taxable year that exceeds

the gain recognized, if any on which tax is required to be

paid by any of the related partners by $5 million or more.

The basis increase allows related parties an opportunity

to decrease their taxable income through increased cost

recovery allowances or reduced taxable gain (or increased

taxable loss) on the disposition of the property in a transaction in which gain or loss is recognized in whole or in part.

Rev. Rul. 2024-13, page 18.

Federal rates; adjusted federal rates; adjusted federal longterm rate, and the long-term tax exempt rate. For purposes

of sections 382, 1274, 1288, 7872 and other sections of

the Code, tables set forth the rates for July 2024.

Rev. Rul. 2024-14, page 18.

This Revenue Ruling advises taxpayers of the Service’s

position challenging certain partnership related-party transactions under the codified economic substance doctrine

in § 7701(o). Under the ruling, the Service applies the

economic substance doctrine in three situations involving

related parties where some or all of whom are partners

in a partnership, and the parties: (1) create basis dispari-

ties through various methods; (2) capitalize on these basis

disparities either by transferring a partnership interest in a

nonrecognition transaction or by making a current or liquidating distribution of partnership property to a partner; and

(3) claim a basis adjustment under §§ 732(b), 734(b), or

743(b). The ruling holds that these transaction structures

lack economic substance under § 7701(o). In such cases,

the Service will disregard the basis adjustments.

The IRS Mission

Provide America’s taxpayers top-quality service by helping

them understand and meet their tax responsibilities and

enforce the law with integrity and fairness to all.

Introduction

The Internal Revenue Bulletin is the authoritative instrument

of the Commissioner of Internal Revenue for announcing official rulings and procedures of the Internal Revenue Service

and for publishing Treasury Decisions, Executive Orders, Tax

Conventions, legislation, court decisions, and other items of

general interest. It is published weekly.

It is the policy of the Service to publish in the Bulletin all substantive rulings necessary to promote a uniform application

of the tax laws, including all rulings that supersede, revoke,

modify, or amend any of those previously published in the

Bulletin. All published rulings apply retroactively unless otherwise indicated. Procedures relating solely to matters of internal management are not published; however, statements of

internal practices and procedures that affect the rights and

duties of taxpayers are published.

Revenue rulings represent the conclusions of the Service

on the application of the law to the pivotal facts stated in

the revenue ruling. In those based on positions taken in rulings to taxpayers or technical advice to Service field offices,

identifying details and information of a confidential nature are

deleted to prevent unwarranted invasions of privacy and to

comply with statutory requirements.

Rulings and procedures reported in the Bulletin do not have the

force and effect of Treasury Department Regulations, but they

may be used as precedents. Unpublished rulings will not be

relied on, used, or cited as precedents by Service personnel in

the disposition of other cases. In applying published rulings and

procedures, the effect of subsequent legislation, regulations,

court decisions, rulings, and procedures must be considered,

and Service personnel and others concerned are cautioned

against reaching the same conclusions in other cases unless

the facts and circumstances are substantially the same.

The Bulletin is divided into four parts as follows:

Part I.—1986 Code.

This part includes rulings and decisions based on provisions

of the Internal Revenue Code of 1986.

Part II.—Treaties and Tax Legislation.

This part is divided into two subparts as follows: Subpart A,

Tax Conventions and Other Related Items, and Subpart B,

Legislation and Related Committee Reports.

Part III.—Administrative, Procedural, and Miscellaneous.

To the extent practicable, pertinent cross references to these

subjects are contained in the other Parts and Subparts. Also

included in this part are Bank Secrecy Act Administrative

Rulings. Bank Secrecy Act Administrative Rulings are issued

by the Department of the Treasury’s Office of the Assistant

Secretary (Enforcement).

Part IV.—Items of General Interest.

This part includes notices of proposed rulemakings, disbarment and suspension lists, and announcements.

The last Bulletin for each month includes a cumulative index

for the matters published during the preceding months. These

monthly indexes are cumulated on a semiannual basis, and are

published in the last Bulletin of each semiannual period.

The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.

July 8, 2024 

Bulletin No. 2024–28

Part I

Section 1274.—

Determination of Issue

Price in the Case of Certain

Debt Instruments Issued for

Property

(Also Sections 42, 280G, 382, 467, 468, 482, 483,

1288, 7520, 7872.)

Rev. Rul. 2024-13

This revenue ruling provides various prescribed rates for federal income

Annual

AFR

110% AFR

120% AFR

130% AFR

5.06%

5.58%

6.09%

6.61%

AFR

110% AFR

120% AFR

130% AFR

150% AFR

175% AFR

4.49%

4.94%

5.40%

5.85%

6.77%

7.92%

AFR

110% AFR

120% AFR

130% AFR

4.61%

5.08%

5.54%

6.02%

Short-term adjusted AFR

Mid-term adjusted AFR

Long-term adjusted AFR

Bulletin No. 2024–28

tax purposes for July 2024 (the current

month). Table 1 contains the short-term,

mid-term, and long-term applicable federal rates (AFR) for the current month for

purposes of section 1274(d) of the Internal

Revenue Code. Table 2 contains the shortterm, mid-term, and long-term adjusted

applicable federal rates (adjusted AFR) for

the current month for purposes of section

1288(b). Table 3 sets forth the adjusted

federal long-term rate and the long-term

tax-exempt rate described in section

382(f). Table 4 contains the appropriate

percentages for determining the low-in-

REV. RUL. 2024-13 TABLE 1

Applicable Federal Rates (AFR) for July 2024

Period for Compounding

Semiannual

Short-term

5.00%

5.50%

6.00%

6.50%

Mid-term

4.44%

4.88%

5.33%

5.77%

6.66%

7.77%

Long-term

4.56%

5.02%

5.47%

5.93%

Annual

3.84%

3.40%

3.49%

REV. RUL. 2024-13 TABLE 2

Adjusted AFR for July 2024

Period for Compounding

Semiannual

3.80%

3.37%

3.46%

15

come housing credit described in section

42(b)(1) for buildings placed in service

during the current month. However, under

section 42(b)(2), the applicable percentage for non-federally subsidized new

buildings placed in service after July 30,

2008, shall not be less than 9%. Table 5

contains the federal rate for determining

the present value of an annuity, an interest

for life or for a term of years, or a remainder or a reversionary interest for purposes

of section 7520. Finally, Table 6 contains

the blended annual rate for 2024 for purposes of section 7872.

Quarterly

Monthly

4.97%

5.46%

5.96%

6.45%

4.95%

5.44%

5.93%

6.41%

4.42%

4.85%

5.29%

5.73%

6.61%

7.70%

4.40%

4.83%

5.27%

5.70%

6.57%

7.65%

4.53%

4.99%

5.43%

5.89%

4.52%

4.97%

5.41%

5.86%

Quarterly

3.78%

3.36%

3.45%

Monthly

3.77%

3.35%

3.44%

July 8, 2024

REV. RUL. 2024-13 TABLE 3

Rates Under Section 382 for July 2024

Adjusted federal long-term rate for the current month

Long-term tax-exempt rate for ownership changes during the current month (the highest of the adjusted federal

long-term rates for the current month and the prior two months.)

3.49%

3.62%

REV. RUL. 2024-13 TABLE 4

Appropriate Percentages Under Section 42(b)(1) for July 2024

Note: Under section 42(b)(2), the applicable percentage for non-federally subsidized new buildings placed in service after

July 30, 2008, shall not be less than 9%.

Appropriate percentage for the 70% present value low-income housing credit

8.06%

Appropriate percentage for the 30% present value low-income housing credit

3.45%

REV. RUL. 2024-13 TABLE 5

Rate Under Section 7520 for July 2024

Applicable federal rate for determining the present value of an annuity, an interest for life or a term of years,

or a remainder or reversionary interest

5.4%

REV. RUL. 2024-13 TABLE 6

Blended Annual Rate for 2024

Section 7872(e)(2) blended annual rate for 2024

July 8, 2024

5.03%

16

Bulletin No. 2024–28

Section 42.—Low-Income

Housing Credit

The applicable federal short-term, mid-term,

and long-term rates are set forth for the month of

July 2024. See Rev. Rul. 2024-13, page 15.

Section 280G.—Golden

Parachute Payments

The applicable federal short-term, mid-term,

and long-term rates are set forth for the month of

July 2024. See Rev. Rul. 2024-13, page 15.

Section 382.—Limitation

on Net Operating Loss

Carryforwards and

Certain Built-In Losses

Following Ownership

Change

The adjusted applicable federal long-term rate

is set forth for the month of July 2024. See Rev.

Rul. 2024-13, page 15.

Section 467.—Certain

Payments for the Use of

Property or Services

The applicable federal short-term, mid-term,

and long-term rates are set forth for the month of

July 2024. See Rev. Rul. 2024-13, page 15.

Section 468.—Special

Rules for Mining and Solid

Waste Reclamation and

Closing Costs

The applicable federal short-term rates are set

forth for the month of July 2024. See Rev. Rul.

2024-13, page 15.

Section 482.—Allocation

of Income and Deductions

Among Taxpayers

The applicable federal short-term, mid-term,

and long-term rates are set forth for the month of

July 2024. See Rev. Rul. 2024-13, page 15.

Section 483.—Interest on

Certain Deferred Payments

The applicable federal short-term, mid-term,

and long-term rates are set forth for the month of

July 2024. See Rev. Rul. 2024-13, page 15.

Section 1288.—Treatment

of Original Issue Discount

on Tax-Exempt Obligations

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of

July 2024. See Rev. Rul. 2024-13, page 15.

Section 7520.—Valuation

Tables

The applicable federal mid-term rates are set

forth for the month of July 2024. See Rev. Rul.

2024-13, page 15.

Section 7872.—Treatment

of Loans With BelowMarket Interest Rates

The applicable federal short-term, mid-term,

and long-term rates are set forth for the month of

July 2024. See Rev. Rul. 2024-13, page 15.

Bulletin No. 2024–28

17

July 8, 2024

Section 7701(o).—

Clarification of economic

substance doctrine

(Also §§ 732, 734, 743, 754, 755)

Rev. Rul. 2024-14

ISSUE

Does the economic substance doctrine

apply to disallow tax benefits associated with a series of transactions involving a related-party partnership, through

which the parties first generate a disparity

between inside basis and outside basis and

then trigger a basis adjustment to property

under § 732(b), § 734(b), or § 743(b),1

which generates increased cost recovery

deductions with respect to the property

or reduced gain (or increased loss) upon a

sale of the property?

FACTS

C is a domestic corporation engaged

in operating a trade or business, including through several subsidiary entities

commonly managed by C or in which C

directly or indirectly holds controlling

financial interests (C Subsidiaries) such

that C is related to each of the C Subsidiaries under § 267(b) or § 707(b)(1). The

C Subsidiaries include, among other entities, Sub 1, Sub 2, Sub 3, Partnership A,

Partnership B, Partnership C, and Partnership D, each of which is indirectly owned

by C through one or more C Subsidiaries.

The C Subsidiaries own various depreciable or amortizable assets used in, and have

incurred various liabilities as part of, the

conduct of C’s trade or business. C issues

financial statements for its trade or business that report these assets and liabilities

of the C Subsidiaries (C Financial Statements).

Situation 1. C indirectly owns more

than 50 percent of the stock of each of

Sub 1, Sub 2, and Sub 3, all domestic corporations. Sub 1 and Sub 2 are the only

partners in Partnership A with each hold-

ing a 50 percent interest in the capital,

profits, and losses of Partnership A. Sub 1

and Sub 3 are the only partners in Partnership B with each holding a 50 percent

interest in the capital, profits, and losses of

Partnership B.

Prior to Date 1, Partnership A had

a valid election in place under § 754.

Also prior to Date 1, Sub 1’s share of

the adjusted tax basis of Partnership A’s

property (that is, Sub 1’s share of Partnership A’s inside basis) was equal to $20x

and the adjusted tax basis of Sub 1’s interest in Partnership A (that is, Sub 1’s outside basis) was $100x. This $80x disparity between Sub 1’s share of Partnership

A’s inside basis and Sub 1’s outside basis

in Partnership A prior to Date 1 resulted

from Sub 1 and Sub 2 making contributions to Partnership A, and Partnership A

making distributions to Sub 1 and Sub 2,

of property with specific Federal income

tax attributes, and the allocation of Federal income tax items in accordance with

§ 704(b) and (c). Such contributions, distributions, and allocations were undertaken with a view to creating a disparity

between Sub 1’s share of Partnership A’s

inside basis and Sub 1’s outside basis in

Partnership A.

On Date 1, Sub 1 transfers its interest

in Partnership A to Partnership B in a contribution that qualifies for nonrecognition

of gain or loss under § 721(a) (Sub 1 Contribution). The stated business purpose

for the Sub 1 Contribution is to achieve

cost savings for C and the C Subsidiaries

by cleaning up intercompany accounts,

reducing administrative complexity, and

achieving other administrative efficiencies.

Immediately after the Sub 1 Contribution, Partnership B’s outside basis in its

interest in Partnership A is $100x under

§ 723 while its share of Partnership A’s

inside basis is $20x (without regard to

§ 743(b)). Under § 743(b), Partnership A

increases the adjusted basis of its property

by $80x (the excess of Partnership B’s

$100x outside basis over its $20x proportionate share of inside basis) with respect

to Partnership B only.2 Partnership A allo-

cates substantially all of this $80x basis

increase to its depreciable or amortizable

property (Basis-Adjusted Property) under

§ 755 and § 1.755-1(b)(5). The Sub 1

Contribution on Date 1 was undertaken

with a view to exploiting the disparity

between Sub 1’s share of Partnership A’s

inside basis and Sub 1’s outside basis in

Partnership A created before Date 1 and

increasing Partnership B’s share of Partnership A’s inside basis in the depreciable

or amortizable property.

The cost savings resulting from the

Sub 1 Contribution are insubstantial in

relation to the reduction in the aggregate

Federal income tax liability of the C Subsidiaries resulting from the $80x increase

in Partnership A’s basis in the Basis-Adjusted Property, which results in Partnership B being allocated increased amounts

of deductions for depreciation or amortization or reduced amounts of gain (or

increased amounts of loss) upon the sale

of the Basis-Adjusted Property. C reports

the relatively small cost savings in the

C Financial Statements.

Situation 2. C indirectly owns more

than 50 percent of the stock of Sub 1 and

Sub 2, both domestic corporations. Sub 1

and Sub 2 are the only partners in Partnership C with each having a 50 percent

interest in the capital, profits, and losses

of Partnership C. Partnership C owns 100

percent of the stock of Sub 3, a domestic corporation, a depreciable asset, and

$100x of money deposited in a bank

account.

Prior to Date 2, Partnership had a valid

election in place under § 754. Also prior

to Date 2, Partnership C held the Sub 3

stock with an adjusted basis of $90x and

fair market value of $100x and held the

depreciable asset with an adjusted basis of

$10x and fair market value of $100x. Also,

Sub 1’s outside basis in Partnership C was

$100x and Sub 2’s outside basis in Partnership C was $10x as a result of Sub 1 and

Sub 2 making contributions to Partnership

C, and Partnership C making distributions

to Sub 1 and Sub 2, of property with specific Federal income tax attributes, and the

allocation of Federal income tax items in

Unless otherwise specified, all “Section” or “§” references are to sections of the Code or the Income Tax Regulations (26 CFR part 1).

This section shows a mechanical application of the rules of subchapter K of chapter 1 of the Code (subchapter K). The tax effect will be disregarded if the economic substance doctrine

applies. Later sections of this revenue ruling address whether the economic substance doctrine applies.

1

2

July 8, 2024

18

Bulletin No. 2024–28

accordance with § 704(b) and (c). Such

contributions, distributions, and allocations were undertaken with a view to creating a disparity between Sub 2’s outside

basis and Partnership C’s inside basis in

the Sub 3 stock.

On Date 2, Partnership C distributes

all of the Sub 3 stock to Sub 2 other than

in liquidation of Sub 2’s interest in Partnership C (Sub 3 Stock Distribution).

The stated business purpose for the Sub 3

Stock Distribution is to achieve cost savings for C and the C Subsidiaries by cleaning up intercompany accounts, reducing

administrative complexity, and achieving

other administrative efficiencies.

Immediately after the Sub 3 Stock

Distribution, Sub 2’s adjusted basis in

the Sub 3 stock is $10x under § 732(a)

(2), the same as Sub 2’s outside basis in

Partnership C prior to the Sub 3 Stock

Distribution. In addition, the Sub 3 Stock

Distribution reduces Sub 2’s outside basis

in Partnership C from $10x to zero under

§ 733(2). Following the Sub 3 Stock Distribution, Partnership C increases the

inside basis of its assets by $80x under

§ 734(b)(1)(B). Under § 755 and § 1.7551(c)(2)(i), Partnership C increases the

adjusted basis of its remaining depreciable

asset from $10x to $90x.3 The Sub 3 stock

Distribution on Date 2 was undertaken

with a view to exploiting the disparity

between Sub 2’s outside basis in Partnership C and Partnership C’s inside basis in

the Sub 3 stock created before Date 2 and

transferring basis from nondepreciable

Sub 3 stock to Partnership C’s remaining

depreciable asset.

The cost savings resulting from the

Sub 3 Stock Distribution are insubstantial

in relation to the reduction in the aggregate Federal income tax liability of the

C Subsidiaries resulting from the $80x

increase in Partnership C’s inside basis

in the remaining depreciable asset, which

results in Sub 1 and Sub 2 being allocated increased amounts of deductions for

depreciation or reduced amounts of gain

(or increased amounts of loss) upon the

sale of Partnership C’s remaining depreciable asset. C reports the relatively small

cost savings in the C Financial Statements.

Situation 3. C indirectly owns more

than 50 percent of the stock of Sub 1 and

Sub 2, both domestic corporations. Sub 1

and Sub 2 are the only partners in Partnership D with each having a 50 percent

interest in the capital, profits, and losses

of Partnership D.

Prior to Date 3, Partnership D owned

two assets: a depreciable asset with an

adjusted basis of $20x and a fair market value of $100x and nondepreciable

land with an adjusted basis of $90x and

fair market value of $100x. Also prior

to Date 3, Sub 1’s outside basis in Partnership D was $100x, and Sub 2’s outside basis in Partnership D was $20x as

a result of Sub 1 and Sub 2 making contributions to Partnership D, and Partnership D making distributions to Sub 1 and

Sub 2, of property with specific Federal

income tax attributes, and the allocation

of Federal income tax items in accordance

with § 704(b) and (c). Such contributions,

distributions, and allocations were undertaken with a view to creating a disparity

between Partnership D’s inside basis in

the depreciable asset and Sub 1’s outside

basis in Partnership D.

On Date 3, Partnership D liquidates by

distributing the depreciable asset to Sub

1 and the nondepreciable land to Sub 2

(Partnership D Liquidation). The stated

business purpose for the Partnership D

Liquidation is to achieve cost savings for

C and the C Subsidiaries by cleaning up

intercompany accounts, reducing administrative complexity, and achieving other

administrative efficiencies.

Immediately after the Partnership D

Liquidation, Sub 1’s adjusted basis in the

depreciable asset is $100x under § 732(b),

the same as Sub 1’s outside basis in Partnership D prior to the Partnership D Liquidation, reflecting an increase of $80x

to the adjusted basis of the depreciable

asset in the hands of Sub 1. Also immediately after the Partnership D Liquidation,

Sub 2’s adjusted basis in the nondepreciable land is $20x under § 732(b), the

same as Sub 2’s outside basis in Partnership D prior to the Partnership D Liquidation, reflecting a decrease of $70x to the

adjusted basis of the nondepreciable land

in the hands of Sub 2. The distribution of

the depreciable asset to Sub 1 as part of

the Partnership D Liquidation on Date 3

was undertaken with a view to exploiting the disparity between Partnership D’s

inside basis in the depreciable asset and

Sub 1’s outside basis in Partnership D created before Date 3 and transferring basis

from nondepreciable land distributed to

Sub 2 to the depreciable asset distributed

to Sub 1.

The cost savings resulting from the

Partnership D Liquidation are insubstantial in relation to the reduction in the

aggregate Federal income tax liability

of the C Subsidiaries resulting from the

$80x increase in Sub 1’s adjusted basis

in the depreciable asset, which results in

increased deductions for depreciation or

reduced amounts of gain (or increased

amounts of loss) upon the sale of the

depreciable asset for Sub 1. C reports

the relatively small cost savings in the

C Financial Statements.

LAW

Section 267(a) generally disallows

deductions in respect of any loss from the

sale or exchange of property, directly or

indirectly, between persons specified in

any of the paragraphs of § 267(b), other

than any loss of a distributing corporation

(or the distributee) in the case of a distribution in complete liquidation. Section

267(b)(3) provides that two corporations

that are members of the same controlled

group (as defined in § 267(f)) have a relationship referred to in § 267(a). Section

267(f)(1) provides that a controlled group

has the meaning given by § 1563(a),

except that “more than 50 percent” is substituted for “at least 80 percent” each place

it appears in § 1563(a), and the determination is made without regard to § 1563(a)

(4) and (e)(3)(C). In addition, § 267(b)

(10) provides that a corporation and a partnership owned by the same persons have

a relationship referred to in § 267(a) if the

same persons own more than 50 percent of

both the value of the outstanding stock of

the corporation and the capital interest, or

the profits interest, in the partnership.

The distribution of Sub 3 stock (controlled corporation) to Sub 2 (corporate partner) meets the requirements of § 732(f) because Partnership C’s adjusted basis in the Sub 3 stock prior to

the Sub 3 Stock Distribution exceeds the adjusted basis of the stock in the hands of the corporate partner (Sub 2). Under § 732(f), the aggregate adjusted bases of Sub 3’s property must be

reduced by $80x, subject to the limitations in § 732(f)(3). Additionally, this revenue ruling does not address the application of § 751(b) to the facts of Situations 2 and 3.

3

Bulletin No. 2024–28

19

July 8, 2024

Section

707(b)(1)(A)

disallows

any deduction for losses from sales or

exchanges of property (other than an

interest in the partnership) directly or indirectly, between a partnership and a partner

owning, directly or indirectly, more than

50 percent of the capital interest, or the

profits interest, in such partnership. Section 707(b)(1)(B) disallows any deduction for losses from sales or exchanges of

property (other than an interest in the partnership) directly or indirectly, between

two partnerships in which the same persons own, directly or indirectly, more than

50 percent of the capital interests or profits

interests.

Section 721(a) provides that no gain

or loss is recognized to a partnership or

to any of its partners on the contribution

of property to the partnership in exchange

for an interest in the partnership. Section

723 provides that the basis of property

contributed to a partnership by a partner is

the adjusted basis of such property to the

contributing partner at the time of the contribution increased by the amount of gain

(if any) recognized under § 721(b) to the

contributing partner at such time.

Section 731(b) provides that no gain

or loss is recognized to a partnership on

the distribution to a partner of property,

including money. Section 732(a)(1) generally provides that the basis of property

(other than money) distributed by a partnership to a partner other than in liquidation of the partner’s interest is its adjusted

basis to the partnership immediately

before the distribution. However, § 732(a)

(2) limits the basis to the distributee partner to the adjusted basis of that partner’s

interest in the partnership reduced by any

money distributed in the same transaction.

Section 732(b) provides that the basis of

property (other than money) distributed

by a partnership to a partner in liquidation of the partner’s interest equals the

adjusted basis of the partner’s interest in

the partnership reduced by any money distributed in the same transaction. Section

732(c) provides rules for the allocation of

basis among properties received in a distribution to which § 732(a)(2) or § 732(b)

applies.

Section 733 provides that the adjusted

basis of a distributee partner’s interest in

a partnership following a non-liquidating distribution is reduced (but not below

July 8, 2024

zero) by (1) the amount of any money distributed to the partner, and (2) the adjusted

basis of distributed property (other than

money), as determined under § 732.

Section 734(a) provides that the basis

of partnership property is not adjusted as

the result of a distribution of property to

a partner unless an election provided in

§ 754 is in effect or there is a substantial

basis reduction (as defined in § 734(d))

with respect to such distribution. Section

734(b) provides that a partnership, with

respect to which an election provided in

§ 754 is in effect or with respect to which

there is a substantial basis reduction,

increases or decreases the adjusted basis of

partnership property to take into account

the gain or loss recognized by a distributee

partner under § 731(a) or changes in the

basis of distributed property under § 732.

Under § 734(b)(1)(B), in the case of distributed property to which § 732(a)(2)

applies, the amount of increase includes

the excess of the adjusted basis of the

distributed property immediately before

the distribution over the basis of the distributed property to the distributee. If

§ 734(b) is applicable, § 734(c) provides

that the allocation of basis among partnership properties is made in accordance

with the rules provided in § 755. Section

734(d) provides that there is a substantial

basis reduction with respect to a distribution if, had an election provided in § 754

been in effect, there would be a negative

net basis adjustment to partnership property of more than $250,000.

Section 743(a) provides that the basis

of partnership property is not adjusted as

the result of a transfer of an interest in a

partnership by sale or exchange or on

the death of a partner unless an election

provided in § 754 is in effect or there is

a substantial built-in loss (as defined in

§ 743(d)) immediately after such transfer.

Section 743(b) provides that, in the case

of a transfer of an interest in a partnership

by sale or exchange or upon the death of

a partner, a partnership with respect to

which an election provided in § 754 is in

effect or a partnership that has a substantial built-in loss immediately after such

transfer, increases the adjusted basis of the

partnership property by the excess of the

basis to the transferee partner of the transferee partner’s interest in the partnership

over such partner’s proportionate share

20

of the adjusted basis of the partnership

property, or decreases the adjusted basis

of the partnership property by the excess

of the transferee partner’s proportionate

share of the adjusted basis of the partnership property over the basis of such partner’s interest in the partnership. Section

743(b) further provides that, under regulations prescribed by the Secretary of the

Treasury or her delegate (Secretary), such

increase or decrease constitutes an adjustment to the basis of partnership property

with respect to the transferee partner only.

If § 743(b) is applicable, § 743(c) provides

that the allocation of basis among partnership properties is made in accordance with

the rules provided in § 755.

Section 754 provides, in part, that if a

partnership files an election, in accordance

with the regulations prescribed by the Secretary, the basis of partnership property is

adjusted, in the case of a distribution of

property, in the manner provided in § 734,

and, in the case of a transfer of a partnership interest, in the manner provided

in § 743. A § 754 election applies with

respect to all distributions of property by

the partnership and to all transfers of interests in the partnership during the taxable

year with respect to which the election

was filed and all subsequent taxable years.

Section 755(a) provides that a basis

adjustment under § 734(b) or § 743(b)

is allocated among partnership properties in a manner that reduces the difference between the fair market values and

adjusted bases of those properties or in

any other manner permitted by the regulations prescribed by the Secretary. Section 755(b) provides that in applying the

allocation rules of § 755(a), increases or

decreases in the adjusted basis of partnership property arising from a distribution

of, or a transfer of an interest attributable

to, capital assets and property described

in § 1231(b), or any other property of the

partnership, are allocated to partnership

property of like character. The allocation

of basis adjustments under §§ 743(b) and

734(b) among partnership property is provided in § 1.755-1(b) and (c), respectively.

Section 7701(o)(1) provides that, in

the case of any transaction to which the

economic substance doctrine is relevant,

the transaction is treated as having economic substance only if (i) the transaction

changes in a meaningful way (apart from

Bulletin No. 2024–28

Federal income tax effects) the taxpayer’s

economic position, and (ii) the taxpayer has

a substantial purpose (apart from Federal

income tax effects) for entering into such

transaction. For this purpose, achieving a

financial accounting benefit is not taken

into account as a purpose for entering into

a transaction if the origin of such financial

accounting benefit is a reduction of Federal

income tax. Section 7701(o)(4).

Section 7701(o)(5)(A) provides that

the “economic substance doctrine” means

the common law doctrine under which tax

benefits under subtitle A of the Code with

respect to a transaction are not allowable

if the transaction does not have economic

substance or lacks a business purpose.

Section 7701(o)(5)(C) provides that

the determination of whether the economic substance doctrine is relevant to a

transaction is made in the same manner as

if § 7701(o) had never been enacted.

Section 7701(o)(5)(D) provides that

the term “transaction” includes a series of

transactions.

Section 7701(o)(2)(A) provides that if

a taxpayer relies on profit potential to help

prove that a transaction has economic substance, profit potential will only be taken

into account if the present value of the

reasonably-expected pretax profit of that

transaction is substantial in relation to

the present value of the expected net tax

benefits of the transaction that would be

allowed if the Federal income tax effects

of the transaction were not disregarded.

Section 6662(b)(6) provides that a 20

percent penalty applies to an underpayment attributable to a transaction lacking

economic substance under § 7701(o) or

failing to meet the requirements of any

similar rule of law. Under § 6662(i), the

penalty is increased to 40 percent on any

portion of an underpayment that is attributable to one or more nondisclosed noneconomic substance transactions. Under

§ 6664(c)(2), there is no reasonable cause

exception to the penalties described in

§ 6662(b)(6) or (i).

ANALYSIS

The basis adjustment rules under

§§ 732(b), 734(b), and 743(b) are intended

to reduce disparities between inside and

outside basis that would otherwise result

from a distribution of property or transfer

of a partnership interest. In each of Situations 1-3, however, the parties engaged

in a concerted effort to create disparities

between inside and outside basis through

various methods, such as the contribution or distribution of property with specific Federal income tax attributes or the

allocation of Federal income tax items in

accordance with § 704(b) and (c). They

then exploited the created disparities by

engaging in transfers resulting in basis

adjustments under the mechanical rules

of § 732(b), 734(b), or 743(b) to inappropriately reduce taxable income through

increased deductions or reduced gain (or

increased loss).

In Situation 1, the actions of the parties creating a disparity between Sub 1’s

outside basis and share of Partnership A’s

inside basis, the transfer of Sub 1’s interest in Partnership A to Partnership B in

the Sub 1 Contribution, and the resulting

positive basis adjustment to Partnership

B’s share of inside basis of Partnership A’s

property under § 743(b) were undertaken

with a view to increasing Partnership B’s

share of Partnership A’s inside basis in

depreciable or amortizable property by

$80x while avoiding recognition of gain

or loss under § 721(a) through a nonrecognition transaction. Additionally, the

$80x basis increase was relatively large in

amount compared to the cost savings to C

and the C Subsidiaries.

In Situation 2, the actions of the parties creating a disparity between Sub 2’s

outside basis and Partnership C’s inside

basis in the Sub 3 stock, the distribution

of Sub 3 stock (a high-inside basis asset)

to Sub 2 (a partner with a low outside

basis in its partnership interest) and the

resulting adjustment to the inside basis of

Partnership C’s remaining property were

undertaken with a view to transferring

$80x of basis from nondepreciable Sub 3

stock to Partnership C’s remaining depreciable asset while avoiding recognition of

gain or loss under § 731 through a nonrecognition distribution. Additionally, the

$80x basis increase was relatively large in

amount compared to the cost savings.

In Situation 3, the actions of the parties creating a disparity between Sub 1’s

outside basis and Partnership D’s adjusted

basis in the depreciable asset, the liquidating distribution of the depreciable

asset (a low-inside basis asset) to Sub 1

(a partner with a high outside basis in its

partnership interest) in the Partnership D

Liquidation and the resulting adjustment

to the adjusted basis of the depreciable

asset to Sub 1 under § 732(b) were undertaken with a view to transferring basis

from nondepreciable land distributed to

Sub 2 to the depreciable asset distributed

to Sub 1 while avoiding recognition of

gain or loss under § 731 through a nonrecognition distribution. Additionally, the

$80x basis increase was relatively large in

amount compared to the cost savings to C

and the C Subsidiaries.

Situations 1-3 all involve persons

related to each other under § 267(b) or

§ 707(b)(1). A transaction among related

parties to avoid Federal income tax by

generating inflated basis adjustments

falls outside the plain intent of §§ 732(b),

734(b), 743(b), and 754. While the differing economic interests of unrelated parties

generally make it less likely that unrelated

partners will engage in transactions such

as those in Situations 1-3, partnerships

composed of related partners have no such

disincentive.4

Congress intended that the provisions

of subchapter K apply to transactions

between partnerships and their partners to

preserve parity between inside and outside

basis “so as to prevent any unintended tax

benefit or detriment to the partners.” H.R.

Rep. No. 1337, 83d Cong., 2d Sess. A225

(1954); S. Rep. No. 1622, 83d Cong., 2d

Sess. 384 (1954). Congress also expressed

its desire to prevent related parties from

exploiting the rules of subchapter K to

avoid tax “through the realization of fictitious losses or increasing the basis of

property for purposes of depreciation.”

H.R. Rep. No. 1337, at A226; S. Rep. No.

1622, at 386-87.

Congress did not intend that taxpayers be able to avoid or indefinitely defer

taxation altogether by creating basis disparities through contributions or distributions of property or through allocations

This revenue ruling does not address the application of § 7701(o) to transactions among unrelated partners. Depending on the specific facts, § 7701(o) may apply to transactions among

unrelated partners.

4

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21

July 8, 2024

of tax items by reason of a § 743(b) basis

adjustment after a nonrecognition transaction, such as the Sub 1 Contribution in

Situation 1; by reason of a § 734(b) basis

adjustment after distribution of property,

such as the Sub 3 Stock Distribution in

Situation 2; or by reason of a § 732(b)

basis adjustment after a liquidating distribution of property, such as the Partnership

D Liquidation in Situation 3. The shared

economic interests of related parties make

them more likely than unrelated parties

to attempt to generate such tax benefits

in a manner not intended by Congress by

entering into transactions with no meaningful economic change.

Unless a “meaning plainly appears”

that Congress intended a provision to

grant a tax benefit to transactions without

economic substance or business purpose,

such an intent “will not [be] attribute[d] to

Congress.” Knetsch v. United States, 364

U.S. 361, 367-69 (1960). The economic

substance doctrine is intended to apply

“despite literal compliance with the statute.” Coltec Indus., Inc. v. United States,

454 F.3d 1340, 1354 (Fed. Cir. 2006); see

Gregory v. Helvering, 293 U.S. 465, 470

(1935). The economic substance doctrine

was developed to address transactions

such as these, which follow the literal

words of the Code but lie outside of Congress’s plain intent. Gregory, 293 U.S. at

469-70.

Each series of transactions described in

Situations 1-3 lacks economic substance.

In each of those situations, the economic

substance doctrine is applied to basis

adjustments generated by the following

series of connected transactions involving related parties, which may occur over

the course of several taxable years: (i) the

parties generate basis disparities through

various methods, such as contributions of

property with specific Federal income tax

attributes to the partnership, the allocation

of Federal income tax items in accordance

with § 704(b) and (c), or distributions

of property with specific attributes to

the partners, and (ii) either (1) a partner

transfers its partnership interest in a nonrecognition transaction while there exists

an inside/outside basis disparity, or (2)

the partnership distributes property with

specific Federal income tax attributes (for

example, high inside basis) to one or more

partners with specific Federal income tax

July 8, 2024

attributes (for example, low outside basis)

in a current or liquidating distribution. The

resulting basis adjustments, if allowed,

would permit the parties to shift basis in

a manner that enables the parties to claim

increased cost recovery deductions or

reduced gain (or increased loss) upon the

sale of the basis-adjusted property.

In applying the conjunctive test of

§ 7701(o)(1), each of two prongs must be

met for the transactions described in Situations 1-3 to have economic substance.

First, under § 7701(o)(1)(A), the transaction must change in a meaningful way

(apart from Federal income tax effects)

the taxpayer’s economic position. Second,

under § 7701(o)(1)(B), the taxpayer must

have had a substantial purpose (apart from

Federal income tax effects) for entering

into the transaction.

With respect to the first prong under

§ 7701(o)(1)(A), the transactions in Situations 1-3 have a negligible effect on C’s

economic position because the transactions shift ownership of property among

commonly controlled entities without

“effect[ing] any real change in the ‘flow

of economic benefits,’ or provid[ing] any

real ‘opportunity to make a profit’ . . . .”

Coltec, 454 F.3d at 1360; see Reddam v.

Commissioner, 755 F.3d 1051, 1060-62

(9th Cir. 2014). The transactions fail to

“appreciably affect the [taxpayer’s] beneficial interest except to reduce . . . tax”;

that is, the transactions do not appreciably affect C’s beneficial interests in the

C Subsidiaries or their assets, except to

reduce the aggregate Federal income tax

liability of the related persons involved.

Knetsch, 364 U.S. at 366 (quoting Gilbert

v. Commissioner, 248 F.2d 399, 411 (2d

Cir. 1957) (Learned Hand, J., dissenting))

(emphasis added). The only potential economic gains are derived from purported

cost savings from cleaning up intercompany accounts between the C Subsidiaries, reducing administrative complexity,

and achieving administrative efficiencies.

However, any such cost savings do not

change C and the C Subsidiaries’ economic

position in a meaningful way because any

economic benefits attributable to purported cost savings (apart from the Federal income tax effects) are insubstantial

compared to the $80x in Federal income

tax benefits from the basis adjustments

attributable to these transactions. The

22

basis increases of $80x resulting from the

transactions in Situations 1-3 can be used

to reduce taxable income of the C Subsidiaries through depreciation, amortization,

or other deductions or reduce gain recognized upon the sale of the property. The

transactions were “designed to generate”

basis increases, and those basis increases

“would always . . . have overshadowed”

the economic gain, including gain derived

from cost savings. Reddam, 755 F.3d at

1061-62. Even if there had been “some

prospect of profit” from transferring a

partnership interest or partnership property among related parties, the calculable

Federal income tax benefits would have

“far exceeded any independent potential

for economic return.” Bank of New York

Mellon Corp. v. Commissioner, 801 F.3d

104, 117-18, 120 (2d Cir. 2015); Salem

Fin., Inc. v. United States, 786 F.3d 932,

949 (Fed. Cir. 2015) (citing Knetsch, 364

U.S. at 365-66). Thus, any change in economic position (apart from the Federal

income tax effects) in the transactions

described in Situations 1-3 is not meaningful within the meaning of § 7701(o)(1)

(A).

With respect to the second prong of the

conjunctive test under § 7701(o)(1)(B),

the transactions described in Situations

1-3 demonstrate a lack of any substantial

purpose (apart from Federal income tax

effects) to enter into these transactions.

The stated business purpose of achieving

cost savings from cleaning up intercompany accounts between the C Subsidiaries, reducing administrative complexity,

and achieving administrative efficiencies

may be a legitimate nontax economic purpose. However, any such business purpose

is not substantial compared to the Federal

income tax purposes the transactions were

designed to carry out. See Reddam, 755

F.3d at 1061. Many of the facts in these

transactions demonstrating a lack of meaningful change in economic position (apart

from Federal income tax effects) also

demonstrate a lack of substantial purpose

(apart from Federal income tax effects)

for these related parties to enter into these

transactions. Reasonable inferences into

a taxpayer’s purpose for entering a transaction can be drawn from the facts and

circumstances surrounding such transaction, including results from a transaction

that the taxpayer could have reasonably

Bulletin No. 2024–28

anticipated as well as results from a transaction that were by design. The fact that

the cost savings were insubstantial compared to relatively large basis increases of

$80x, that there was no appreciable effect

on the parties’ economic ownership of

the property allocated the basis increases,

and that the transactions were structured

to guarantee basis increases of $80x to

depreciable or amortizable property while

carrying a de minimis risk of economic

loss compared to the designed Federal

income tax benefit, Altria Grp., 658 F.3d

at 290-91, “indicate[] that the taxpayer’s

true motivation for the transaction is tax

avoidance.” See Bank of New York Mellon Corp. v. United States, 140 T.C. 15, 38

(2013). Therefore, C lacked a substantial

purpose (apart from Federal income tax

effects) for causing its subsidiaries to enter

into the transactions described in Situations 1-3 within the meaning of § 7701(o)

(1)(B).

If a transaction or series of transactions

lacks economic substance, it may be disregarded for Federal income tax purposes.

See Gregory, 293 U.S. 465; Coltec, 454

F.3d at 1352; ACM P’ship v. Commissioner, 157 F.3d 231, 247-48 (3d Cir.

1998). While a transaction might meet the

literal requirements of the Code, courts

will not recognize a transaction that is not

within the intent of the Code. Gregory, 293

U.S. at 469-70. The series of transactions

described in Situations 1-3—related-party

contributions or distributions of property

or allocations of tax items and the subsequent transfer of a partnership interest or

distribution of property to generate a basis

adjustment to property that is eligible for

cost recovery (or is held for future sale)—

failed both prongs under § 7701(o)(1) and,

therefore, lack economic substance. As a

result, their Federal income tax effects

must be disregarded. The transactions did

not change in a meaningful way (apart

from Federal income tax effects) the economic position of C or the C Subsidiaries

within the meaning of § 7701(o)(1)(A),

and C lacked a substantial business or

other purpose (apart from Federal income

tax effects) for causing the C Subsidiaries

to enter into these transactions within the

meaning of § 7701(o)(1)(B).

In addition, under § 6662(b)(6), the

transactions described in Situations 1-3

give rise to a 20 percent penalty applicable to an underpayment attributable to a

transaction lacking economic substance

under § 7701(o). The penalty is increased

to 40 percent on any portion of the underpayment attributable to one or more nondisclosed noneconomic substance transactions. See § 6662(i). Under § 6664(c)(2),

a reasonable cause exception to the penalties described in § 6662(b)(6) and (i) may

not be asserted.

The series of transactions described

in Situations 1-3 may also be subject

to the partnership anti-abuse rule under

§ 1.701-2 or the § 704(c) anti-abuse rule

under § 1.704-3(a)(10). Other anti-abuse

doctrines including, but not limited to,

the substance-over-form doctrine and

step-transaction doctrine may apply,

depending on the facts and circumstances

of a specific transaction or series of transactions.

HOLDING(S)5

(1) The series of transactions in Situations 1-3 lack economic substance under

§ 7701(o). The transactions did not change

the economic position of C or the C Subsidiaries in a meaningful way (aside from

the Federal income tax effects). Additionally, neither C nor the C Subsidiaries

had a substantial purpose for entering the

transactions (aside from Federal income

tax effects).

(2) In Situation 1, the basis adjustment

under § 743(b) is disregarded. As a result,

Partnership B is not entitled to an increase

of $80x in its share of the inside basis of

Partnership A’s assets, and Partnership B’s

share of the inside basis of Partnership A’s

assets remains $20x.

(3) In Situation 2, the basis adjustment

under § 734(b) is disregarded. As a result,

Partnership C is not entitled to an increase

of $80x to the inside basis of the remaining depreciable asset, and the inside basis

of the depreciable asset remains $10x.

(4) In Situation 3, the basis adjustment

to Sub 1 under § 732(b) is disregarded. As

a result, Sub 1 is not entitled to an increase

of $80x to the adjusted basis of the depreciable asset, and the adjusted basis of Sub

1’s depreciable asset remains $20x.

(5) C and/or the C Subsidiaries, as

applicable, are subject to the 20 percent

penalty under § 6662(b)(6) or the 40 percent penalty under § 6662(i) for a nondisclosed noneconomic substance transaction, as applicable.

DRAFTING INFORMATION

The principal author of this revenue

ruling is Anthony P. Sacco of the Office

of Associate Chief Counsel (Passthroughs

and Special Industries). For further information regarding this revenue ruling, contact Anthony P. Sacco at (202) 317-5805.

This revenue ruling makes no interpretations regarding which audit procedures (for example, the application of subchapter C of chapter 63 of the Code) might apply to effectuate the substantive interpretations of the Holdings section. Any such interpretations would require facts that are outside the scope of this revenue ruling.

5

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23

July 8, 2024

Part III

Forthcoming Guidance

Regarding Certain

Partnership Related-Party

Transactions

Notice 2024-54

SECTION 1. PURPOSE

.01 This notice announces that the

Department of the Treasury (Treasury

Department) and the Internal Revenue

Service (IRS) intend to publish two sets

of forthcoming proposed regulations that

would address certain basis-shifting transactions involving partnerships and related

parties. These transactions, referred to as

“covered transactions” in this notice, (1)

involve partners in a partnership and their

related parties, (2) result in increases to the

basis of property under § 732, § 734(b),

or § 743(b) of the Internal Revenue Code

(Code),1 and (3) generate increased cost

recovery allowances or reduced gain (or

increased loss) upon the sale or other disposition of the basis-adjusted property.

First, the Treasury Department and the

IRS intend to propose regulations under

§§ 732, 734(b), 743(b) and 755 (forthcoming Proposed Related-Party Basis

Adjustment Regulations) that would (1)

provide the required method of recovering

adjustments to the bases of property held

by a partnership, property distributed by a

partnership, or both, arising from the covered transactions described in section 3 of

this notice, (2) provide rules governing the

determination of gain or loss on the disposition of such basis-adjusted property, and

(3) include similar transactions involving

tax-indifferent parties (for example, certain foreign persons, a tax-exempt organization, or a party with tax attributes that

make it tax-indifferent) rather than related

parties.

Second, the Treasury Department and

the IRS intend to propose regulations

under § 1502 (forthcoming Proposed Consolidated Return Regulations) to clearly

reflect the taxable income and tax liability of a consolidated group (as defined

in § 1.1502-1(h)) whose members own

interests in a partnership. More specifically, the Treasury Department and the

IRS anticipate that the forthcoming Proposed Consolidated Return Regulations

would provide for single-entity treatment

of members that are partners in a partnership, so that covered transactions cannot

shift basis among group members and distort group income.

.02 Section 2 of this notice provides a

summary of relevant law. Section 3 of this

notice provides an overview of the need

for the forthcoming proposed regulations2

and a description of the covered transactions. Sections 4 and 5 of this notice

describe the forthcoming Proposed Related-Party Basis Adjustment Regulations

and the forthcoming Proposed Consolidated Return Regulations, respectively.

Section 6 of this notice describes the proposed applicability dates of the forthcoming proposed regulations. Section 7 of this

notice contains a request for comments.

SECTION 2. BACKGROUND

.01 Basis adjustments under subchapter K

(1) In general. Under subchapter K of

chapter 1 of the Code (subchapter K), 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 § 732(a),

(b), or (d). In the case of a distribution

of partnership property to a partner by a

partnership with an election under § 754

(§ 754 election) in effect, or with respect

to which there is a substantial basis reduction as described in § 734(d), the distribution may also result in an adjustment to

the basis of the partnership’s remaining

partnership property under § 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

§ 754 election in effect or has a substantial built-in loss with respect to the transfer of the partnership interest as described

in § 743(d), the transfer may result in an

adjustment to the basis of partnership

property under § 743(b) with respect to

the transferee partner.

Section 754 provides that if a partnership makes an election in accordance

with regulations prescribed by the Secretary of the Treasury or her delegate (Secretary), the basis of partnership property

shall be adjusted, in the case of a distribution of property, in the manner provided

in § 734, and in the case of a transfer

of a partnership interest, in the manner

provided in § 743. Unless the election

is revoked in accordance with the regulations under § 754, the § 754 election

applies with respect to all distributions

of property by the partnership and to all

transfers of interests in the partnership

during the taxable year with respect to

which the election was filed and all subsequent taxable years.

(2) Basis adjustments under § 732.

Section 732 governs a distributee partner’s basis in distributed property other

than money. In the case of a current distribution, and except as provided under

§ 732(a)(2), § 732(a)(1) provides that the

distributee partner’s basis in distributed

property (other than money) is equal to

the partnership’s adjusted basis in the distributed property immediately before the

distribution. Under § 732(a)(2), however,

a distributee partner’s basis in distributed

property is limited to the adjusted basis of

the distributee partner’s partnership interest reduced by any money distributed to

such partner in the same transaction.

In the case of a liquidating distribution,

§ 732(b) provides that the distributee partner’s basis in distributed property (other

than money) is equal to the adjusted basis

of the distributee partner’s partnership

interest reduced by any money distributed

to such partner in the same transaction.

Unless otherwise noted, all “section” or “§” references are to sections of the Code or the Income Tax Regulations (26 CFR part 1).

References in this notice to the “forthcoming proposed regulations” are references to the forthcoming Proposed Related-Party Basis Adjustment Regulations and the forthcoming Proposed

Consolidated Return Regulations, collectively.

1

2

July 8, 2024

24

Bulletin No. 2024–28

In the case of a distribution of more

than one property from a partnership,

the basis of the distributed properties to

which § 732(a)(2) and (b) apply must be

allocated among the distributed properties

under the rules of § 732(c) and the regulations thereunder.

(3) Basis adjustments under § 734.

In the case of a distribution of property

by a partnership with a § 754 election in

effect, and for which either the distributee partner recognizes gain or loss on

the distribution, or for which the basis

of the distributed property in the distributee partner’s hands, as determined

under § 732, differs from the partnership’s adjusted basis in the distributed

property immediately before the distribution, § 734(b) requires the partnership to

increase or decrease (as applicable) the

basis of its remaining partnership property. Also, in the case of a distribution

of property by a partnership that results

in a substantial basis reduction under

§ 734(d), the basis of remaining partnership property must be adjusted under

§ 734(b), even if the partnership does not

have a § 754 election in effect.

Section 734(b)(1) requires a partnership to increase the basis of its remaining

property if a distribution of property by

the partnership results in the distributee

partner recognizing gain under § 731(a)

(1), or if property (other than money) to

which § 732(a)(2) or (b) applies is distributed to the distributee partner and the

property’s adjusted basis to the partnership immediately before the distribution is

greater than the distributee partner’s basis

in the distributed property as determined

under § 732. Section 731(a)(1) requires a

distributee partner to recognize gain in a

current or liquidating distribution to the

extent that any money distributed to that

partner in the distribution exceeds the

adjusted basis of that partner’s partnership

interest immediately before the distribution. The amount of the basis increase

to the partnership’s remaining property

under § 734(b)(1) following a distribution of partnership property to a partner

is equal to the amount of gain recognized

by the distributee partner in the distribution under § 731(a)(1) and the excess of

the partnership’s adjusted basis in the distributed property immediately before the

distribution over the distributee partner’s

Bulletin No. 2024–28

basis in the distributed property as determined under § 732.

Section 734(b)(2) requires a partnership to decrease the basis of its remaining

property if a distribution of property by

the partnership results in the distributee

partner recognizing loss under § 731(a)

(2), or if property (other than money) to

which § 732(b) applies is distributed to

the distributee partner in a distribution

and the property’s adjusted basis to the

partnership immediately before the distribution is less than the distributee partner’s

basis in the distributed property as determined under § 732. Under § 731(a)(2), a

distributee partner may recognize a loss in

a liquidating distribution of that partner’s

interest in the partnership to the extent that

such partner received only money, unrealized receivables described in § 751(c), or

inventory items described in § 751(d) in

the distribution. In such a case, the distributee partner is required to recognize a loss

to the extent that such partner’s adjusted

basis in the partnership interest exceeds

the sum of any money distributed to that

partner in the distribution and the basis to

the distributee partner (determined under

§ 732) of any unrealized receivables or

inventory received by that partner in the

distribution. The amount of the basis

decrease to the partnership’s remaining

property under § 734(b)(2) following a

distribution of partnership property to

a partner is equal to the amount of loss

recognized by the distributee partner in

the distribution under § 731(a)(2) and

the excess of the distributee partner’s

basis in the distributed property as determined under § 732 over the partnership’s

adjusted basis in the distributed property

immediately before the distribution.

A partnership without a § 754 election

in effect is subject to a mandatory basis

adjustment under § 734(b)(2) if there is

a substantial basis reduction with respect

to a distribution of partnership property. Under § 734(d), a substantial basis

reduction with respect to a distribution of

partnership property occurs if the sum of

the amount of loss recognized to the distributee partner on the distribution, plus

any increase in basis in the distributed

property to the distributee partner under

§ 732(b), exceeds $250,000.

(4) Basis adjustments under § 743(b).

Generally, if a partnership interest is trans-

25

ferred in a sale or exchange or on the death

of a partner, the transferee partner’s basis

in the transferred partnership interest is

determined under § 742 and the basis of

partnership property is determined under

§ 743(a). Section 742 provides that the

transferee partner’s basis in a partnership

interest acquired other than by contribution is determined under part II of subchapter O of chapter 1 of the Code, beginning at § 1011 and following. Thus, for

example, a transferee partner’s basis in a

partnership interest acquired by purchase

generally is cost basis under § 1012.

Section 743(a) provides that, in the

case of a transfer of a partnership interest

by sale or exchange or on the death of a

partner, the basis of partnership property

is not adjusted unless either the partnership has a § 754 election in effect or the

partnership has a substantial built-in loss

with respect to the transfer of the partnership interest.

Under § 743(b), in the case of a transfer of a partnership interest by sale or

exchange or on the death of a partner, a

partnership with a § 754 election in effect

or that has a substantial built-in loss with

respect to the transfer of the partnership

interest must increase or decrease (as

applicable) the adjusted basis of partnership property with respect to the transferee partner.

Section 743(b)(1) provides that the

adjusted basis of partnership property is

increased by the excess of the transferee

partner’s basis in the transferred partnership interest over the transferee partner’s

proportionate share of the adjusted basis

of partnership property.

Section 743(b)(2) provides that the

adjusted basis of partnership property

is decreased by the excess of the transferee partner’s proportionate share of the

adjusted basis of partnership property

over the transferee partner’s basis in the

transferred partnership interest.

A partnership without a § 754 election

is subject to a mandatory basis adjustment

under § 743(b) with respect to a transfer

of a partnership interest if the partnership

has a substantial built-in loss with respect

to the transfer of the partnership interest.

Under § 743(d)(1), a partnership has a

substantial built-in loss with respect to a

transfer of an interest in the partnership if

either the partnership’s adjusted basis in

July 8, 2024

its property exceeds the fair market value

of such property by more than $250,000,

or the transferee partner would be allocated a loss of more than $250,000 if the

partnership assets were sold for cash equal

to their fair market value immediately

after the transfer.

Under regulations prescribed by the

Secretary, a basis adjustment under

§ 743(b) is an adjustment to the basis of

partnership property with respect to the

transferee partner only. The transferee

partner’s proportionate share of the partnership’s adjusted basis in its property

generally is determined in accordance

with the transferee partner’s interest in

the partnership’s previously taxed capital

(including the transferee partner’s share of

partnership liabilities) under regulations

prescribed by the Secretary.

(5) Allocation of § 734(b) or § 743(b)

basis adjustments. Section 734(c) states

that a basis adjustment under § 734(b) is

allocated among partnership properties

under the rules of § 755. Section 743(c)

states that a basis adjustment under

§ 743(b) is allocated among partnership

properties under the rules of § 755.

Section 755(a) generally requires basis

adjustments under § 734(b) or § 743(b)

to be allocated in a manner that has the

effect of reducing the difference between

the fair market value and the adjusted

basis of partnership properties or in any

other manner permitted by regulations.

In addition, § 755(b) requires these basis

adjustments to be allocated to partnership

property of a like character or to subsequently acquired partnership property of

a like character if such property is not

available or has insufficient basis at the

time of the basis adjustment (because a

decrease in the adjusted basis of the property would reduce the basis of such property below zero). Section 755(c) provides

a special rule that prohibits allocating a

basis decrease under § 734(b) to the stock

of a corporation that is a partner of the

partnership (or that is related to a partner

of the partnership within the meaning of

§ 267(b) or § 707(b)(1)).

(6) Common terminology for bases

with respect to a partnership interest. A

partner’s adjusted basis in its partnership

interest commonly is referred to as the

partner’s “outside basis” in its partnership

interest. A partnership’s adjusted basis in

July 8, 2024

its property commonly is referred to as the

“inside basis” of the partnership’s property. Each partner has a share of inside

basis. For ease of explanation, this terminology is used in section 3 of this notice.

.02 Affiliated group of corporations

filing a consolidated return. Section 1501

grants an affiliated group of corporations

the privilege of making a consolidated

return, in lieu of separate returns, for Federal income tax purposes. Section 1502

authorizes the Secretary to prescribe consolidated return regulations for an affiliated group of corporations that join in

filing (or that are required to join in filing)

a consolidated return (that is, a consolidated group as defined in § 1.1502-1(h))

to clearly reflect the Federal income tax

liability of the consolidated group and

to prevent avoidance of such tax liability (§ 1502 regulations). For purposes of

carrying out those objectives, § 1502 also

permits the Secretary to prescribe rules

that may be different from the provisions

of chapter 1 of the Code that would apply

if the corporations composing the consolidated group filed separate returns. Terms

used in the § 1502 regulations generally

are defined in § 1.1502-1.

The § 1502 regulations provide rules

to clearly reflect the Federal income tax

liability of both the consolidated group

and each of its members. Therefore, these

regulations reflect a mix of single- and

separate-entity treatment. For example, the intercompany-transaction rules

in § 1.1502-13(c) generally respect the

existence of intercompany transactions

between the separate members but recompute and redetermine the members’ tax

items from the transaction to produce the

same effect on the group as if the transacting members were divisions of a single

corporation.

.03 Basis-adjustment reporting for

consolidated groups

Form 1120, U.S. Corporation Income

Tax Return, includes a new question on

Schedule K, Question 31, applicable to

certain large, consolidated groups for any

taxable year ending on or after December

31, 2023. This question asks consolidated

groups with gross receipts or sales of $1

billion or more to report certain subchapter K basis adjustments, as described in

the Instructions to the 2023 Form 1120

(released for public comment on Decem-

26

ber 20, 2023). The intent of this question

is for taxpayers to identify certain related-party basis adjustment transactions

that were entered into by members of the

consolidated group in consolidated years

ending on or after December 31, 2023.

SECTION 3. COVERED

TRANSACTIONS

.01 Overview of the need for the forthcoming proposed regulations.

The Treasury Department and the IRS

are aware of related persons using partnerships to engage in transactions that inappropriately exploit the basis-adjustment

provisions of subchapter K applicable to

distributions of partnership property or

transfers of partnership interests discussed

in section 2 of this notice. This awareness

results from the IRS’s review of various

partnership transactions involving related

parties in which basis adjustments were

created to artificially generate or regenerate Federal income tax benefits that

resulted in significant tax savings without

a corresponding economic outlay. These

transactions were carefully structured to

exploit the mechanical basis-adjustment

provisions of subchapter K to produce

significant tax benefits with little or no

economic impact on the related parties,

and in a manner that would not be a likely

arrangement between partners negotiating

at arm’s-length.

Generally, in a covered transaction,

partnership property is distributed to a

partner who is related to one or more other

partners, and that distribution results in a

person related to the distributee partner,

the distributee partner, or both, receiving

all or a share of a basis increase in the distributed property or remaining partnership

property under § 732 or § 734(b) (as applicable); alternatively, a partnership interest

is transferred between related persons or

to a transferee partner who is related to

an existing partner in the partnership, and

that transfer results in an increase to the

inside basis in partnership property with

respect to the transferee partner under

§ 743(b).

The covered transactions generally are

structured so that, under the applicable

allocation rules (§§ 732(c), 734(c), 743(c),

and 755), the basis increase is allocated to

property that is eligible for cost recovery

Bulletin No. 2024–28

allowances (or eligible for a shorter cost

recovery period) or that the partnership

or the distributee partner disposes of in a

taxable sale or exchange. Accordingly, the

basis increase results in related partners

decreasing their overall taxable income

through additional or accelerated cost

recovery allowances or decreasing their

taxable gain or increasing their taxable

loss on the subsequent taxable disposition of the property subject to the basis

increase.

The related partners receive these tax

benefits directly in the case of a distribution of property in which the basis of the

distributed property is increased in the

distributee partner’s hands under § 732(b)

or § 732(d). They receive these benefits indirectly in the case of a transfer of

a partnership interest in which the inside

basis of partnership property is increased

for the transferee partner under § 743(b)

or in the case of a distribution of property

that results in an increase to the common basis of partnership property under

§ 734(b). Whether the tax benefits are

received directly or indirectly, the resulting decrease in taxable income or gain

(or increase in taxable loss) benefits the

related-party group as a whole. Further,

because the partners are related, the distributions or transfers may have little or no

effect on the overall economic ownership

of the property yet produce significant tax

benefits shared by the related partners.

A related partner’s partnership interest

must have certain characteristics to create

the opportunity for a covered transaction.

In general, these characteristics are (1) a

partner’s outside basis in its partnership

interest that is low compared to the partnership’s basis in property it distributes to

such partner, (2) a partner’s outside basis

in its partnership interest that is high compared to such partner’s share of the partnership’s basis in the partnership property (that is, the partner’s share of inside

basis), or (3) a partner’s outside basis in its

partnership interest that is high compared

to the partnership’s basis in property it

distributes to such partner in liquidation

of the partner’s interest. Partnerships with

related parties can create these characteristics through orchestrated contributions

and distributions, as well as allocations

under § 704(b) and (c). In most commercial transactions involving unrelated par-

Bulletin No. 2024–28

ties, the opportunity for abuse is limited

because each party has separate, and often

competing, economic and tax interests,

and the parties transact at arm’s length.

In contrast, for related parties, basis can

be manipulated to provide a material net

tax benefit to the related parties. Such

basis shifting is contrary to congressional

intent in enacting subchapter K. Congress

intended that the provisions of subchapter

K apply to transactions between partnerships and their partners to preserve parity

between inside and outside basis “so as

to prevent any unintended tax benefit or

detriment to the partners.” H.R. Rep. No.

1337, 83d Cong., 2d Sess. A225 (1954);

S. Rep. No. 1622, 83d Cong., 2d Sess. 384

(1954). Congress also expressed its desire

to prevent related parties from exploiting the rules of subchapter K to avoid

tax “through the realization of fictitious

losses or increasing the basis of property

for purposes of depreciation.” H.R. Rep.

No. 1337, at A226; S. Rep. No. 1622, at

386-87.

.02 Covered transactions under

§ 734(b).

In a covered transaction under

§ 734(b), a partnership with a § 754 election in effect and two or more partners that

are related to each other makes a current

or liquidating distribution of property to

one or more of the related partners. Immediately before the distribution, the partnership’s basis in the distributed partnership

property exceeds the distributee partner’s

basis in its partnership interest (that is,

the partnership distributes property with

a relatively high inside basis to a distributee partner with a relatively low outside basis). Under § 732(a)(2) or (b), the

low-outside basis partner takes a basis in

the distributed property that is lower than

the inside basis of the property immediately before the distribution.

As a result of the basis decrease to the

distributed property in the hands of the

distributee partner under § 732(a)(2) or

(b), the partnership increases the basis of

its remaining properties under § 734(b)

by an amount equal to the excess of the

partnership’s basis in the distributed property immediately before the distribution

over the basis of the distributed property

in the hands of the distributee partner

immediately after the distribution. Under

§§ 734(c) and 755, the partnership allo-

27

cates this basis increase among remaining

partnership properties.

.03 Covered transactions under

§ 743(b).

In a covered transaction under

§ 743(b), (1) a partner transfers an interest in a partnership that has a § 754 election in effect or a substantial built-in loss

immediately after such transfer (2) to a

related transferee or a transferee that is

related to one or more of the partners (3)

in a nonrecognition transaction within the

meaning of § 7701(a)(45) in which the

gain recognized, if any, and for which tax

imposed by subtitle A of the Code (subtitle

A) is required to be paid, is less than the

aggregate amount of the increase(s) in the

basis of partnership property with respect

to the transferee partner under §§ 743(b)

and 755.

In order for the transfer to give rise to a

basis adjustment under § 743(b), the transferee partner must have an inside-outside

basis disparity with respect to its partnership interest so that the transferee partner’s

outside basis does not equal the transferee

partner’s share of inside basis. Because a

§ 754 election is in effect for the taxable

year of the transfer or the partnership or a

substantial built-in loss immediately after

such transfer, a basis adjustment is made

under § 743(b) or (d) to partnership property with respect to the transferee partner

to eliminate the inside-outside basis disparity of the transferee partner. As a result

of the transfer, the partnership allocates

one or more basis increases to partnership

property with respect to the transferee

partner under §§ 743(c) and 755.

.04 Covered transactions under § 732.

In a covered transaction under § 732, a

partner (distributee partner) receives a liquidating distribution of property resulting

in a basis increase in the distributed property under § 732(b) and (c), and either—

(1) The partnership liquidates and distributes the partnership’s remaining partnership property to one or more parties

related to the distributee partner (related

distributee partner) resulting in a basis

adjustment that reduces the basis (basis

decrease) of such property to the related

distributee partners under § 732(b) and

(c), or

(2) The partnership continues, and a

related party to the distributee partner is

a continuing partner (related continuing

July 8, 2024

partner) that has a share of the partnership’s basis decrease under § 734(b) or (d)

resulting from the liquidating distribution

or would have had a share of the partnership’s basis decrease under § 734(b) if the

partnership had a § 754 election in effect.

SECTION 4. FORTHCOMING

PROPOSED RELATEDPARTY BASIS ADJUSTMENT

REGULATIONS

.01. In general. The forthcoming Proposed Related-Party Basis Adjustment

Regulations would provide special rules

that would apply to the cost recovery of

basis adjustments arising from the covered

transactions described in section 3 of this

notice, as well as rules that would govern

whether and how a basis adjustment arising from a covered transaction would be

taken into account upon the disposition of

such basis-adjusted property. These proposed regulations would be mechanical

rules applicable to all covered transactions

without regard to the taxpayer’s intent and

without regard to whether the transactions

could be abusive or lacking in economic

substance. Additionally, these proposed

regulations would apply only if, and to the

extent that, property has been allocated a

basis increase. If, and to the extent, property has been allocated a basis decrease,

the proposed rules would not apply.

.02 Related persons; cost recovery. In

general, for purposes of the forthcoming

Proposed Related-Party Basis Adjustment

Regulations, partners and other persons

would be considered as related if they

have a relationship described in § 267(b)

(without regard to § 267(c)(3)) or § 707(b)

(1) immediately before or immediately

after a transaction. For purposes of the

forthcoming Proposed Related-Party

Basis Adjustment Regulations, the term

“cost recovery” means an allowance for

depreciation, amortization, or depletion

under subtitle A.

.03 Related-party basis adjustments;

cost recovery and disposition rules. Based

on the authority provided in §§ 482, 732,

734(b), 743(b), 755, and 7805, as well

as the provisions of the Code that otherwise permit cost recovery allowances

with respect to basis increases under

subchapter K, the forthcoming Proposed

Related-Party Basis Adjustment Regula-

July 8, 2024

tions would provide that a basis increase

allocated to property retained or distributed by a partnership following a covered

transaction (related-party basis adjustment, or RPBA) would be subject to specific rules providing the required method

of recovering the basis adjustment and the

treatment of the basis adjustment upon the

disposition of the property to which the

adjustment applies.

.04 Treatment of basis adjustments

resulting from covered transactions under

§ 734(b).

The forthcoming Proposed Related-Party Basis Adjustment Regulations

would provide that an RPBA arising

from a covered transaction described

in section 3.02 of this notice (§ 734(b)

RPBA) would be recovered using the cost

recovery method and remaining recovery

period, if any, of the corresponding distributed property that gave rise to such

§ 734(b) RPBA. In addition, the partnership would not be eligible to take the

§ 734(b) RPBA into account upon the sale

or other disposition of partnership property to which a § 734(b) RPBA applies,

subject to the rules described below. After

a qualifying disposition of a corresponding distributed property, the basis adjustment would cease to be a § 734(b) RPBA.

A qualifying disposition would mean a

disposition of a corresponding distributed property to an unrelated person in an

arm’s-length transaction in which taxable

gain or loss is fully recognized. Except as

otherwise provided, if a basis adjustment

ceases to be a § 734(b) RPBA, the remaining basis attributable to the former RPBA

would be treated as giving rise to newly

placed in service property that is subject

to the cost recovery period and method

of the property to which it was allocated,

to the extent the property is eligible for

cost recovery allowances, and the basis

adjustment would be taken into account

in computing gain or loss upon the sale

or other disposition of the property. These

rules would not apply to the share of any

§ 734(b) basis adjustment of a partner that

is unrelated to the distributee partner. For

purposes of this rule, a partner’s share of

a basis adjustment under § 734(b) would

be determined under principles similar to

those in § 1.197-2(h)(12)(iv)(D).

If a partnership distributes to a partner

property with respect to which there is a

28

§ 734(b) RPBA in place, the partner would

take into account the § 734(b) RPBA in

determining the basis of the property

in the partner’s hands and the partner’s

outside basis in the partnership, and the

basis adjustment would remain a § 734(b)

RPBA until the basis adjustment ceases to

be a § 734(b) RPBA, as described above.

If a partnership disposes of property

to which a § 734(b) RPBA applies (other

than in a distribution to a partner) or a

partner disposes of property to which a

§ 734(b) RPBA applies, the amount of

the § 734(b) RPBA would be reallocated

to other property of the partnership or the

partner (under rules similar to the rules of

§ 1.755-1(c)) and would remain a § 734(b)

RPBA. If the partnership or partner cannot

reallocate a § 734(b) RPBA to any asset

under the preceding sentence because the

partnership or partner does not own property of a like character, the reallocation

would be made when property of a like

character is subsequently acquired.

.05 Treatment of basis adjustments

resulting from covered transactions under

§ 743(b).

The forthcoming Proposed Related-Party Basis Adjustment Regulations

would provide that an RPBA arising from

a covered transaction described in section 3.03 of this notice (§ 743(b) RPBA)

would be ineligible for cost recovery until

the transferee partner becomes unrelated

to both the transferor partner and to all

existing partners as described below. In

addition, the transferee partner would

not be eligible to take the § 743(b) RPBA

into account upon the sale or other disposition of partnership property to which

a § 743(b) RPBA applies, subject to the

rules described below. If a transferee partner that has a § 743(b) RPBA in place

ceases to be related to both the transferor

and all persons who were partners immediately before or immediately after the

covered transaction, then the basis adjustment would cease to be a § 743(b) RPBA.

Except as otherwise provided, if a basis

adjustment ceases to be a § 743(b) RPBA,

the basis attributable to the former RPBA

would be treated as giving rise to newly

placed in service property that is subject

to the cost recovery period and method of

the property to which it was allocated, to

the extent the property is eligible for cost

recovery allowances, and the basis adjust-

Bulletin No. 2024–28

ment would be taken into account in computing gain or loss upon the sale or other

disposition of the property.

If a partnership distributes to a transferee partner property with respect to

which there is a § 743(b) RPBA in place,

the transferee partner would take into

account the § 743(b) RPBA in determining the basis of the property in the partner’s hands as well as in determining the

partner’s outside basis in the partnership,

and the basis adjustment would remain a

§ 743(b) RPBA until the basis adjustment

ceases to be a § 743(b) RPBA, as described

above. That is, the § 743(b) RPBA would

be taken into account for purposes of

applying § 732 but would remain ineligible for cost recovery and would not be

used in computing gain or loss on the sale

or disposition of the distributed property

by the transferee partner.

If a partnership disposes of property to

which a § 743(b) RPBA applies (other than

in a distribution to the transferee partner)

or a transferee partner disposes of property

to which a § 743(b) RPBA applies, then

the amount of the § 743(b) RPBA would

be reallocated to other property (under

rules similar to the rules of § 1.755-1(c))

and would remain a § 743(b) RPBA. If the

partnership or transferee partner cannot

reallocate a § 743(b) RPBA to any asset

under the preceding sentence because the

partnership or transferee partner does not

own property of a like character, the reallocation would be made when property of

a like character is subsequently acquired.

If any gain is recognized in a covered

transaction described in section 3.03 of

this notice, and tax imposed by subtitle

A is required to be paid on such gain, the

portion of each basis increase attributable to the gain would not be treated as a

§ 743(b) RPBA.

.06 Treatment of basis adjustments

resulting from covered transactions under

§ 732.

The forthcoming Proposed Related-Party Basis Adjustment Regulations

would generally require that a basis

increase to distributed property under

§ 732(b) and (c) be treated as a § 732

RPBA to the extent such increase corresponds to a basis decrease of a related

partner (or the basis decrease a related

partner would have had if the partnership

had a § 754 election in effect). In the case

Bulletin No. 2024–28

of a covered transaction described in section 3.04(1) of this notice (complete liquidation of the partnership), if a partnership makes liquidating distributions to all

partners, a basis increase under § 732(b)

and (c) to property distributed to the distributee partner would be treated as one

or more § 732 RPBAs to the extent of a

basis decrease under § 732(b) and (c) to

property distributed to a related distributee partner. In the case of a covered transaction described in section 3.04(2) of this

notice (continuation of the partnership),

if a partnership makes a liquidating distribution to one partner and there is a

resulting basis decrease under § 734(b),

including a basis decrease that is suspended under § 1.755-1(c)(4) (or there

would have been if the partnership had a

§ 754 election in effect), a basis increase

under § 732(b) and (c) to property distributed to the distributee partner would

be treated as one or more § 732 RPBAs

to the extent of a related continuing partner’s share of a resulting basis decrease

under § 734(b) (or the basis decrease

under § 734(b) that would have resulted

if the partnership had a § 754 election in

effect).

The forthcoming Proposed Related-Party Basis Adjustment Regulations

would require that a § 732 RPBA arising

from a covered transaction described in

section 3.04(1) of this notice resulting in a

basis increase under § 732(b) and (c) to the

property of the distributee partner would

be recovered using the cost recovery

method and remaining recovery period,

if any, of the corresponding property the

basis of which a related distributee partner

reduced. In addition, the distributee partner would not be eligible to take the § 732

RPBA into account upon the sale or other

disposition of the property to which the

§ 732 RPBA applies, subject to the rules

described below. These rules would not

apply to any portion of the basis increase

that corresponds to a basis decrease to

property distributed to an unrelated partner.

The forthcoming Proposed Related-Party Basis Adjustment Regulations

would require that a § 732 RPBA arising

from a covered transaction described in

section 3.04(2) of this notice and resulting in a basis increase under § 732(b)

and (c) to the property of the distribu-

29

tee partner would be recovered using

the cost recovery method and remaining recovery period, if any, of the corresponding property the basis of which

the partnership reduced under § 734(b),

or would have reduced under § 734(b) if

the partnership had a § 754 election in

effect. In addition, the distributee partner

would not be eligible to take the § 732

RPBA into account upon the sale or other

disposition of the property to which the

§ 732 RPBA applies, subject to the rules

described below. These rules would not

apply to any portion of the basis increase

that corresponds to the share of any basis

decrease under § 734(b) of a partner

unrelated to the distributee partner (or

the unrelated partner’s share of a basis

decrease under § 734(b) if the partnership had a § 754 election in effect). For

purposes of this rule, a partner’s share of

a basis decrease under § 734(b) would be

determined under principles similar to

those in § 1.197-2(h)(12)(iv)(D).

For purposes of all covered transactions

described in section 3.04 of this notice, in

the case of multiple distributed properties,

the proposed regulations would treat each

distributed property as having a separate

§ 732 RPBA with respect to each basis

decrease to corresponding property. The

amount of a § 732 RPBA would be proportional to the share of the basis decrease

to that § 732 RPBA’s corresponding property out of the aggregate basis decrease to

all corresponding property. A § 732 RPBA

would be recovered using the cost recovery

method and remaining recovery period, if

any, of that § 732 RPBA’s corresponding property. For purposes of this section

4.06, “corresponding property” would

mean, in the case of a covered transaction

described in section 3.04(1) of this notice,

property distributed to a related distributee partner and allocated a basis decrease

under § 732(b) and (c) and, in the case of

a covered transaction described in section

3.04(2) of this notice, property allocated a

basis decrease under § 734(b) of which a

related continuing partner has a share (or

would have a share if the partnership had

a § 754 election in effect). In addition, the

partner would not be eligible to take the

§ 732 RPBA into account upon the sale

or other disposition of property to which

a § 732 RPBA applies, subject to the rules

described below.

July 8, 2024

For purposes of all covered transactions described in section 3.04 of this

notice, upon a qualifying disposition

of a corresponding property, any § 732

RPBA to which that property corresponds would cease to be a § 732 RPBA.

If a basis adjustment ceases to be a § 732

RPBA, the remaining basis attributable

to the former RPBA would be treated

as giving rise to newly placed in service property that is subject to the cost

recovery period and method of the distributed property, to the extent the property is eligible for cost recovery allowances, and the basis adjustment would

be taken into account in computing gain

or loss upon the sale or other disposition

of the property. A qualifying disposition

would mean a disposition of property to

an unrelated person in a fully taxable,

arm’s-length transaction.

.07 Special rules and tax-indifferent parties. Special rules in the forthcoming Proposed Related-Party Basis

Adjustment Regulations would apply to

covered transactions that involve other

related subchapter K provisions, such as

§ 732(d) and (f), and additional steps, as

well as to tiered-partnership structures.

The forthcoming Proposed Related-Party

Basis Adjustment Regulations would

also treat as a covered transaction certain partnership arrangements involving

taxable and tax-indifferent parties that

would otherwise be a covered transaction

if the relatedness requirement of section

3.02, 3.03, or 3.04 of this notice were

satisfied. For example, if a partnership,

in which no partners are related, makes

a distribution to an organization exempt

from tax imposed by subtitle A by reason of § 501(a) of property that results in

a basis increase to remaining partnership

property under § 734(b)(1), this transaction would be treated as a covered transaction described in section 3.02 of this

notice. For purposes of the forthcoming

Proposed Related-Party Basis Adjustment

Regulations, a tax-indifferent party would

be defined as a person that is either not

liable for Federal income tax because of

its tax-exempt or, in certain cases, foreign

status or, also in certain cases, to which

gain from the transaction would not result

in Federal income tax liability for the person’s taxable year within which such gain

is recognized.

July 8, 2024

SECTION 5. FORTHCOMING

PROPOSED CONSOLIDATED

RETURN REGULATIONS

.01 In general. As a result of the interplay between the § 1502 regulations and

the rules of subchapter K, a consolidated

group’s income from investments in partnerships often is not clearly reflected in

the group’s consolidated taxable income

(as determined under § 1.1502-11 and

other applicable § 1502 regulations) and

consolidated tax liability (as determined

under § 1.1502-2 and other applicable

§ 1502 regulations). In particular, anomalous results arise in certain situations in

which the group’s ownership interest in a

partnership is split among members of the

group, or in which a partnership interest is

transferred from one member to another.

The Treasury Department and the IRS

are concerned that some consolidated

groups have attempted to alter consolidated taxable income or consolidated

tax liability through basis adjustments to

the property of partnerships owned by a

group’s members simply by: (i) transferring partnership interests from one

member to another; or (ii) separating the

group’s ownership interest in a partnership between different members and causing the partnership to distribute property

to one or more of the member partners.

Such an alteration of consolidated taxable

income or consolidated tax liability does

not clearly reflect the income of the group,

which files a single tax return for each taxable year and generally reports its income

and tax liability as if it were a single corporation. See §§ 1501 and 1502.

To prevent distortion of a consolidated

group’s income from investments in partnerships, the forthcoming Proposed Consolidated Return Regulations would apply

a single-entity approach with respect to

interests in a partnership held by members

of a consolidated group. It is intended that

the forthcoming Proposed Consolidated

Return Regulations would prevent direct

or indirect basis shifts among the members

of the group resulting from the covered

transactions described in section 3 of this

notice. This approach would avoid many of

the anomalous results that arise from split

ownership of partnership interests among

members of the group or from intercompany transfers of partnership interests.

30

SECTION 6. PROPOSED

APPLICABILITY DATES

.01 The Treasury Department and the

IRS intend to propose that the Treasury

decision that adopts the Proposed Related-Party Basis Adjustment Regulations

described in section 4 of this notice as

final regulations would apply to taxable

years ending on or after June 17, 2024.

That is, once finalized, the regulations

would govern the availability and amount

of cost recovery deductions and gain or

loss calculations for taxable years ending

on or after June 17, 2024 even if the relevant covered transaction was completed in

a prior taxable year.

.02 The applicability date for the Treasury decision that adopts the forthcoming

Proposed Consolidated Return Regulations described in section 5 of this notice

will not relate to the issuance of this notice

but will be proposed in the notice of proposed rulemaking containing the forthcoming Proposed Consolidated Return

Regulations.

SECTION 7. REQUEST FOR

COMMENTS AND SUBMISSION

INFORMATION

.01 Request for comments. The Treasury Department and the IRS request

comments on the approaches to addressing distortions of income from partnership

related-party basis shifting transactions

described in sections 4 and 5 of this notice.

.02 Procedures for submitting comments.

(1) Deadline. Written comments should

be submitted by July 17, 2024. However,

consideration will be given to any written

comments submitted after July 17, 2024,

if such consideration will not delay the

issuance of the proposed regulations.

(2) Form and manner. The subject line

for the comments should include a reference to Notice 2024-54. All commenters

are strongly encouraged to submit comments electronically. However, comments

may be submitted in one of two ways:

(a) Electronically via the Federal

eRulemaking Portal at https://www.regulations.gov (type IRS-2024-0027 in the

search field on the regulations.gov homepage to find this notice and submit comments); or

Bulletin No. 2024–28

(b) By mail to: Internal Revenue Service, CC:PA:01:PR (Notice 2024-54),

Room 5203, P.O. Box 7604, Ben Franklin

Station, Washington, D.C., 20044.

(3) Publication of comments. The Treasury Department and the IRS will publish

for public availability any comment submitted electronically and on paper to its

public docket on https://www.regulations.

gov.

SECTION 8. DRAFTING

INFORMATION

The principal authors of this notice

are Kevin I. Babitz and Anthony P. Sacco

of the Office of Associate Chief Counsel

(Passthroughs and Special Industries). For

further information regarding this notice,

contact Elizabeth V. Zanet at (202) 3176007 or Anthony P. Sacco at (202) 3175805. Regarding the forthcoming Proposed Consolidated Return Regulations,

contact Jeremy Aron-Dine at (202) 3176847.

Certain Exceptions to

the 10 Percent Additional

Tax Under Code

Section 72(t)

Notice 2024-55

I. PURPOSE

This notice provides guidance on the

application of the exceptions to the 10 percent additional tax under section 72(t)(1)

of the Internal Revenue Code (Code) for

emergency personal expense distributions

and domestic abuse victim distributions.

The Department of the Treasury (Treasury

Department) and the Internal Revenue

Service (IRS) anticipate issuing regulations under section 72(t) of the Code, and

section IV of this notice solicits public

comments with respect to all aspects of

section 72(t).

II. BACKGROUND

Section 72(t)(1) of the Code generally

provides for a 10 percent additional tax

on a distribution from a qualified retirement plan, as defined in section 4974(c),

unless the distribution qualifies for one

of the exceptions listed in section 72(t)

(2). The 10 percent additional tax applies

only to the portion of the distribution that

is includible in gross income. For purposes of section 72(t), the term “qualified

retirement plan,” as defined in section

4974(c), means a plan described in section

401(a) that includes a trust exempt from

tax under section 501(a), an annuity plan

described in section 403(a), an annuity

contract described in section 403(b), an

individual retirement account described in

section 408(a), or an individual retirement

annuity described in section 408(b).1

Section 72(t)(2) provides several

exceptions to the 10 percent additional tax

imposed by section 72(t)(1), including, for

example, exceptions for distributions:

• made on or after the date on which the

employee2 attains age 59 ½;

• made to a beneficiary (or to the estate

of the employee) on or after the death

of the employee;

• attributable to the employee being disabled within the meaning of section

72(m)(7);

• that are part of a series of substantially

equal periodic payments (not less frequently than annually) made for the life

(or life expectancy) of the employee or

the joint lives (or joint life expectancies) of the employee and the employee’s designated beneficiary; and

• made, if the distributions are not made

from an IRA, to an employee after separation from service after attainment of

age 55.

On December 29, 2022, Division T

of the Consolidated Appropriations Act,

2023, Public Law 117-328, 136 Stat. 4459

(2022), known as the SECURE 2.0 Act

of 2022 (SECURE 2.0 Act), was enacted.

Sections 115 and 314 of the SECURE 2.0

Act amended section 72(t) of the Code to

add exceptions to the 10 percent additional

tax, and this notice provides guidance on

those sections.

III. PROVISIONS OF THE SECURE

2.0 ACT

A. SECTION 115 OF THE SECURE

2.0 ACT -- EMERGENCY

PERSONAL EXPENSE

DISTRIBUTIONS

Section 115 of the SECURE 2.0 Act

amended section 72(t)(2) of the Code by

adding section 72(t)(2)(I), which provides

a new exception to the 10 percent additional tax for a distribution from an applicable eligible retirement plan to an individual for emergency personal expenses.

An emergency personal expense distribution is includible in gross income but is

not subject to the 10 percent additional tax

under section 72(t)(1).

Section 72(t)(2)(I)(iv) provides that

the term “emergency personal expense

distribution” means any distribution

made from an applicable eligible retirement plan to an individual for purposes

of meeting unforeseeable or immediate

financial needs relating to necessary personal or family emergency expenses. Section 72(t)(2)(I)(iv) also provides that the

term “applicable eligible retirement plan”

has the same meaning as in section 72(t)

(2)(H)(vi)(I), where the term is defined as

an eligible retirement plan described in

section 402(c)(8)(B) other than a defined

benefit plan.

Emergency personal expense distributions are subject to three limitations.

First, section 72(t)(2)(I)(ii) provides that

not more than one distribution per calendar year is permitted to be treated as an

emergency personal expense distribution

by any individual. Second, section 72(t)

(2)(I)(iii) permits an individual to treat

a distribution as an emergency personal

expense distribution in any calendar

year in an amount up to a maximum of

$1,000.3 Third, section 72(t)(2)(I)(vii)

provides rules that limit taking subsequent emergency personal expense distributions.

For purposes of this notice, the term “IRA” includes an individual retirement account described in section 408(a) and an individual retirement annuity described in section 408(b).

The term “employee” includes any participant in an employee retirement plan, and in the case of an IRA, the individual for whose benefit the IRA was established. See generally section

72(t)(5).

3

This $1,000 amount is not indexed for inflation.

1

2

Bulletin No. 2024–28

31

July 8, 2024

Section 72(t)(2)(I)(iv) provides that

an administrator of an applicable eligible

retirement plan may rely on an employee’s

written certification that the employee satisfies the conditions for an emergency personal expense distribution. The Secretary

may provide by regulations for exceptions

to the rule regarding a plan administrator’s

reliance on an employee’s certification,

and for procedures for addressing cases of

employee misrepresentation.

Section 72(t)(2)(I)(v) provides that if

a distribution from an applicable eligible

retirement plan to an individual would

be an emergency personal expense distribution (without regard to the limitations in section 72(t)(2)(I)(ii) and (iii)), a

plan will not be treated as failing to meet

any requirement under the Code merely

because the plan treats the distribution

as an emergency personal expense distribution, unless the aggregate amount

of the distributions from all plans maintained by the employer (and any member

of any controlled group4 that includes the

employer) to that individual exceeds the

limitations described in section 72(t)(2)(I)

(ii) and (iii).

Section 72(t)(2)(I)(vi) provides that the

rules relating to repayment of emergency

personal expense distributions should follow the rules for repayment of qualified

birth or adoption distributions in section

72(t)(2)(H)(v). Therefore, an individual

generally may, at any time during the

3-year period beginning on the day after

the date on which the distribution was

received, repay an emergency personal

expense distribution (not to exceed the

aggregate amount of the emergency personal expense distribution) to an applicable eligible retirement plan in which the

individual is a beneficiary and to which a

rollover can be made.

Section 72(t)(2)(I)(viii) provides that

the special rules in section 72(t)(2)(H)(vi)

(II) and (IV) (for qualified birth or adoption

distributions) also apply for emergency

personal expense distributions. Thus, an

emergency personal expense distribution

is not treated as an eligible rollover distribution for purposes of the direct rollover rules under section 401(a)(31), the

notice requirement under section 402(f),

or the mandatory withholding rules under

section 3405. In addition, emergency personal expense distributions are treated as

meeting the distribution requirements of

sections 401(k)(2)(B)(i), 403(b)(7)(A)(i),

403(b)(11), and 457(d)(1)(A).

The amendment made to section 72(t)

(2) by section 115 of the SECURE 2.0 Act

applies to emergency personal expense

distributions made after December 31,

2023.

Questions and Answers Relating to

Individuals Receiving Emergency

Personal Expense Distributions

Q. A-1: What is an emergency personal

expense distribution?

A. A-1: An emergency personal

expense distribution is a distribution

made from an applicable eligible retirement plan to an individual for purposes

of meeting unforeseeable or immediate

financial needs relating to necessary personal or family emergency expenses. An

emergency personal expense distribution

is includible in gross income, but it is not

subject to the 10 percent additional tax

under section 72(t)(1).

Q. A-2: How does an individual determine whether an expense is an unforeseeable or immediate financial need relating

to necessary personal or family emergency expenses?

A. A-2: Whether an individual has an

unforeseeable or immediate financial need

relating to necessary personal or family

emergency expenses is determined by

the relevant facts and circumstances for

each individual. Factors to be considered

include, but are not limited to, whether

the individual (or a family member of the

individual) has expenses relating to -(a) medical care (including the cost

of medicine or treatment that would be

deductible under section 213(d), determined without regard to the limitations in

section 213(a)),

(b) accident or loss of property due to

casualty,

(c) imminent foreclosure or eviction

from a primary residence,

(d) the need to pay for burial or funeral

expenses,

(e) auto repairs, or

(f) any other necessary emergency personal expenses.

For purposes of determining whether

an individual has an unforeseeable or

immediate financial need, the administrator may rely on an employee’s written

certification that the employee is eligible

for an emergency personal expense distribution. See Q&A A-9 of this notice.

Q. A-3: Which types of plans are eligible to permit an emergency personal

expense distribution?

A. A-3: An emergency personal

expense distribution may be made from

an applicable eligible retirement plan,

which means an eligible retirement plan

described in section 402(c)(8)(B) other

than a defined benefit plan. Therefore,

generally, a section 401(a) qualified

defined contribution plan (such as a section 401(k) plan), a section 403(a) annuity

plan, a section 403(b) annuity contract, a

governmental section 457(b) plan, or an

IRA is eligible to permit an emergency

personal expense distribution.

Q. A-4: How frequently can an individual treat a distribution from an applicable

eligible retirement plan as an emergency

personal expense distribution?

A. A-4: An individual is permitted to

treat only one distribution per calendar

year as an emergency personal expense

distribution.

Q. A-5: Is there a dollar limitation on

the amount that an individual may treat as

an emergency personal expense distribution under section 72(t)(2)(I)(iii)?

A. A-5: The amount that may be treated

as an emergency personal expense distribution by an individual in any calendar

year shall not exceed the lesser of $1,000

or an amount equal to the excess of -(a) the individual’s total nonforfeitable

accrued benefit under the plan (in the case

of an IRA, the individual’s total interest

in the IRA), determined as of the date of

each such distribution, over

(b) $1,000.

For example, Plan C is a section 401(k)

plan that permits emergency personal

expense distributions, and Employee A is

a participant in Plan C. On July 1, 2025,

Employee A has a vested account balance

Section 72(t)(2)(I)(v) applies the controlled group definition in section 72(t)(2)(H)(iv)(II), which defines “controlled group” as any group treated as a single employer under section 414(b),

(c), (m), or (o).

4

July 8, 2024

32

Bulletin No. 2024–28

of $1,500 in Plan C. On July 1, 2025,

Employee A requests an emergency personal expense distribution of $500 from

Plan C. Employee A has not previously

received an emergency personal expense

distribution. The excess of Employee

A’s nonforfeitable interest in Plan C

over $1,000 is $1,500 - $1,000, or $500.

Employee A is permitted to treat $500 from

Plan C as an emergency personal expense

distribution (the lesser of $1,000 or the

amount equal to $1,500 - $1,000 ($500)).

Q. A-6: Once an individual treats a

distribution as an emergency personal

expense distribution, how soon can that

individual take a subsequent emergency

personal expense distribution?

A. A-6: Notwithstanding the limitation

in Q&A A-4 of this notice, if an individual

treats a distribution as an emergency personal expense distribution in any calendar

year with respect to an applicable eligible

retirement plan, no amount of any subsequent distribution can be treated as an

emergency personal expense distribution

during the immediately following 3 calendar years with respect to that plan unless -(a) the previous emergency personal

expense distribution is fully repaid to the

plan, or

(b) the aggregate of the individual’s

elective deferrals and employee contributions to the plan (in the case of an IRA, the

total amounts that the individual contributed to the IRA) after the previous emergency personal expense distribution is at

least equal to the amount of the previous

emergency personal expense distribution

that has not been repaid.

For example, consider the same facts

as Q&A A-5 of this notice (Employee A

requests from Plan C an emergency personal expense distribution of $500 on July

1, 2025). Employee A does not repay the

emergency personal expense distribution

but continues to make elective deferrals

to Plan C. On August 1, 2027, Employee

A has an account balance in the amount

of $5,000. With respect to the $5,000

account balance, Employee A contributed

$3,500 in elective deferrals since the July

1, 2025, distribution. On August 1, 2027,

Employee A requests an emergency personal expense distribution (which meets

the requirements of Q&A A-1 of this

notice) of $1,000 from Plan C. This distribution meets the limitation requirements

in Q&A A-4 (annual limitation), Q&A

A-5 (dollar limitation), and Q&A A-6

(limitation on subsequent distributions) of

this notice.

Q. A-7: May an individual repay an

emergency personal expense distribution

to an applicable eligible retirement plan?

A. A-7: An individual may, at any time

during the 3-year period beginning on the

day after the date on which the distribution was received, repay any portion of an

emergency personal expense distribution

(up to the entire amount of the emergency

personal expense distribution) to an applicable eligible retirement plan in which the

individual is a beneficiary and to which a

rollover can be made under section 402(c),

403(a)(4), 403(b)(8), 408(d)(3), or 457(e)

(16), as applicable.

Questions and Answers Relating to

Applicable Eligible Retirement Plans

Permitting Emergency Personal

Expense Distributions.

Q. A-8: Is an applicable eligible retirement plan required to permit emergency

personal expense distributions under section 72(t)(2)(I)?

A. A-8: It is optional for an applicable eligible retirement plan to permit

emergency personal expense distributions pursuant to section 72(t)(2)(I). Plan

amendments adopted to permit emergency personal expense distributions are

discretionary amendments for purposes

of the plan amendment rules discussed in

Section II.J. of Notice 2024-02, 2024-02

IRB 316. For information relating to the

deadline for adopting plan amendments,

see the plan amendment rules discussed in

Section II.J. of Notice 2024-02.

If an applicable eligible retirement

plan does not permit emergency personal

expense distributions, the individual is

permitted to treat an otherwise permissible distribution5 as an emergency personal

expense distribution. See Q&A A-15 of

this notice.

Q. A-9: May an administrator rely on

a written certification from an employee

that the employee is eligible for an emergency personal expense distribution?

A. A-9: In determining whether an

employee is eligible for an emergency

personal expense distribution, an administrator of an applicable eligible retirement

plan is permitted to rely on an employee’s

written certification that the employee

is eligible for an emergency personal

expense distribution.6 For this purpose,

an administrator is a plan administrator

as defined in section 414(g), or an IRA

trustee, custodian, or issuer.

Q. A-10: Do emergency personal

expense distributions from an applicable

eligible retirement plan meet the distribution restriction requirements in sections

401(k)(2)(B)(i), 403(b)(7)(A)(i), 403(b)

(11), and 457(d)(1)(A)?

A. A-10: Emergency personal expense

distributions are treated as meeting the

distribution restrictions for qualified

cash or deferred arrangements under section 401(k)(2)(B)(i), custodial accounts

under section 403(b)(7)(A)(i), annuity

contracts under section 403(b)(11), and

governmental deferred compensation

plans under section 457(d)(1)(A). Thus,

for example, an employer may expand the

distribution options under its plan to allow

an amount attributable to elective, qualified nonelective, qualified matching, or

safe harbor contributions under a section

401(k) plan to be distributed as an emergency personal expense distribution.

Q. A-11: Is an emergency personal

expense distribution treated by an applicable eligible retirement plan as an eligible

rollover distribution for purposes of the

direct rollover rules, section 402(f) notice

requirements, and the mandatory withholding rules?

A. A-11: An emergency personal

expense distribution is not treated as an

eligible rollover distribution for purposes

For purposes of this notice, a “permissible distribution” means a distribution that meets the distribution restriction requirements in sections 401(k)(2)(B)(i), 403(b)(7)(A)(i), 403(b)(11),

and 457(d)(1)(A) and is permissible under the plan. Thus, for example, a participant in a plan that does not permit emergency personal expense distributions may meet the requirements for

a hardship distribution if the plan permits hardship distributions. In addition, a participant who terminated service with an employer with an accrued benefit under a section 401(k) plan that

does not permit emergency personal expense distributions may meet the distribution restrictions for severance from employment.

6

The written certification may be provided using the electronic delivery rules in §1.401(a)-21(d).

5

Bulletin No. 2024–28

33

July 8, 2024

of the direct rollover rules under section

401(a)(31), the notice requirement under

section 402(f), and the mandatory withholding rules under section 3405. Thus, the

plan is not required to offer an individual

a direct rollover with respect to an emergency personal expense distribution. In

addition, the administrator is not required

to provide a section 402(f) notice. Finally,

the administrator or payor of the emergency personal expense distribution is not

required to withhold an amount equal to 20

percent of the distribution, as generally is

required in section 3405(c)(1). However,

an emergency personal expense distribution is subject to the withholding requirements of section 3405(b) and § 35.3405-1T

of the withholding tax regulations.

Q. A-12: If an applicable eligible retirement plan permits emergency personal

expense distributions, is the plan required

to accept a repayment of that distribution

to the plan?

A. A-12: An applicable eligible retirement plan must accept the repayment of

an emergency personal expense distribution from an individual if the following

apply:

(a) the plan permits emergency personal expense distributions;

(b) the individual received an emergency personal expense distribution from

that plan; and

(c) the individual is eligible to make

a rollover contribution to that plan at the

time the individual wishes to repay the

emergency personal expense distribution

to the plan.

Q. A-13: Is a repayment of an emergency personal expense distribution from

an applicable eligible retirement plan

other than an IRA treated as the direct

transfer of an eligible rollover distribution

as defined in section 402(c)(4)?

A. A-13: In the case of a repayment of

an emergency personal expense distribution from an applicable eligible retirement

plan other than an IRA, an individual is

treated as having received the distribution as an eligible rollover distribution

(as defined in section 402(c)(4)) and as

having transferred the amount to an applicable eligible retirement plan in a direct

trustee-to-trustee transfer within 60 days

of the distribution.

Q. A-14: Is a repayment of an emergency personal expense distribution from

July 8, 2024

an IRA treated as the direct transfer of a

distribution described in section 408(d)

(3)?

A. A-14: In the case of a repayment of

an emergency personal expense distribution from an IRA, an individual is treated

as having received the distribution as a

distribution described in section 408(d)(3)

and as having transferred the amount to

an applicable eligible retirement plan in a

direct trustee-to-trustee transfer within 60

days of the distribution.

Q. A-15: If an applicable eligible

retirement plan does not permit emergency personal expense distributions, may

an individual treat an otherwise permissible distribution as an emergency personal

expense distribution?

A. A-15: If an applicable eligible

retirement plan does not permit emergency personal expense distributions

and an individual receives an otherwise

permissible distribution that meets the

requirements of an emergency personal

expense distribution (as defined in Q&A

A-1 of this notice), the individual may

treat the distribution on the individual’s

federal income tax return as an emergency

personal expense distribution to the extent

the distribution meets the various limitations on an emergency personal expense

distribution (see Q&As A-4 through A-6

of this notice). As part of the individual’s

tax return, the individual will claim on

Form 5329, Additional Taxes on Qualified

Plans (Including IRAs) and Other Tax-Favored Accounts, that the distribution is an

emergency personal expense distribution,

in accordance with the form’s instructions. The distribution, while includible

in gross income, is not subject to the 10

percent additional tax under section 72(t)

(1) pursuant to section 72(t)(2)(I). If the

individual decides to repay the amount to

an eligible retirement plan, the individual

may, at any time during the 3-year period

beginning on the day after the date on

which the distribution was received, repay

the amount to an IRA.

B. SECTION 314 OF THE SECURE

2.0 ACT -- DOMESTIC ABUSE

VICTIM DISTRIBUTIONS

Section 314 of the SECURE 2.0 Act

amended section 72(t)(2) by adding section 72(t)(2)(K), which provides a new

34

exception to the 10 percent additional tax

for an eligible distribution to a domestic

abuse victim (domestic abuse victim distribution). A domestic abuse victim distribution is includible in gross income but is

not subject to the 10 percent additional tax

under section 72(t)(1). A “domestic abuse

victim distribution” is defined in section

72(t)(2)(K)(iii)(I) as any distribution from

an applicable eligible retirement plan to a

domestic abuse victim if made during the

1-year period beginning on any date on

which the individual is a victim of domestic abuse by a spouse or domestic partner.

The term “domestic abuse” is defined in

section 72(t)(2)(K)(iii)(II) as physical,

psychological, sexual, emotional, or economic abuse, including efforts to control,

isolate, humiliate, or intimidate the victim, or to undermine the victim’s ability to

reason independently, including by means

of abuse of the victim’s child or another

family member living in the household.

Section 72(t)(2)(K)(ii) permits an individual to receive a distribution from an

applicable eligible retirement plan of up

to $10,000 (indexed for inflation) without

application of the 10 percent additional tax

if the distribution meets the requirements

to be a domestic abuse victim distribution.

An “applicable eligible retirement plan”

is defined in section 72(t)(2)(K)(vi)(I) as

an eligible retirement plan (as defined in

section 402(c)(8)(B)) other than a defined

benefit plan or a plan to which sections

401(a)(11) and 417 apply.

Section 72(t)(2)(K)(iv) provides that if

a distribution from an applicable eligible

retirement plan to a domestic abuse victim

would be a domestic abuse victim distribution (without regard to the limitation

in section 72(t)(2)(K)(ii)), a plan will not

be treated as failing to meet any requirement under the Code merely because the

plan treats the distribution as a domestic abuse victim distribution, unless the

aggregate amount of the distributions

from all plans maintained by the employer

(and any member of any controlled group

that includes the employer) to the domestic abuse victim exceeds the limitation

described in section 72(t)(2)(K)(ii).

Section 72(t)(2)(K)(v) provides that

the rules relating to repayment of domestic abuse victim distributions should follow the rules in section 72(t)(2)(H)(v)

(the rules for repayment of qualified birth

Bulletin No. 2024–28

or adoption distributions). Therefore,

an individual generally may, at any time

during the 3-year period beginning on the

day after the date on which the distribution was received, repay a domestic abuse

victim distribution (not to exceed the

aggregate amount of the domestic abuse

victim distribution) to an applicable eligible retirement plan in which the individual is a beneficiary and to which a rollover

can be made.

Section 72(t)(2)(K)(vi)(II) provides

that a domestic abuse victim distribution

is not treated as an eligible rollover distribution for purposes of the direct rollover

rules under section 401(a)(31), the notice

requirement under section 402(f), or the

mandatory withholding rules under section 3405.

Section 72(t)(2)(K)(vi)(III) provides

that any distribution that the employee or

participant certifies as a domestic abuse

victim distribution shall be treated as

meeting the distribution requirements of

sections 401(k)(2)(B)(i), 403(b)(7)(A)(i),

403(b)(11), and 457(d)(1)(A).

The amendment made to section 72(t)

(2) by section 314 of the SECURE 2.0 Act

applies to domestic abuse victim distributions made after December 31, 2023.

Questions and Answers Relating to

Individuals Receiving Domestic Abuse

Victim Distributions

Q. B-1: What is a domestic abuse victim distribution?

A. B-1: A domestic abuse victim distribution is a distribution from an applicable eligible retirement plan to a domestic abuse victim made during the 1-year

period beginning on any date on which the

individual is a victim of domestic abuse

by a spouse or domestic partner. A domestic abuse victim distribution is includible

in gross income but is not subject to the 10

percent additional tax under section 72(t)

(1).

Q. B-2: How is domestic abuse defined

for the purposes of a domestic abuse victim distribution?

A. B-2: The term “domestic abuse”

means physical, psychological, sexual,

emotional, or economic abuse, including

efforts to control, isolate, humiliate, or

intimidate the victim, or to undermine the

victim’s ability to reason independently,

Bulletin No. 2024–28

including by means of abuse of the victim’s child or another family member living in the household.

Q. B-3: Which types of plans are eligible to permit a domestic abuse victim

distribution?

A. B-3: A domestic abuse victim distribution may be made from an applicable

eligible retirement plan, which is defined

in section 72(t)(2)(K)(vi)(I) as an eligible retirement plan described in section

402(c)(8)(B), other than a defined benefit

plan or a plan to which the spousal consent requirements of sections 401(a)(11)

and 417 apply. In general, the spousal

consent requirements of sections 401(a)

(11) and 417 apply to certain qualified

retirement plans, including defined benefit plans, money purchase pension plans,

and defined contribution plans that (1) do

not provide 100 percent death benefits for

surviving spouses, (2) provide benefits in

the form of a life annuity, or (3) are direct

or indirect transferees of a defined benefit or money purchase pension plan. See

section 401(a)(11)(B) and § 1.401(a)–20,

Q&A–3.

Q. B-4: Is there a dollar limitation on

the amount that an individual may treat as

a domestic abuse victim distribution under

section 72(t)(2)(K)?

A. B-4: The aggregate amount that an

individual may treat as a domestic abuse

victim distribution cannot exceed the

lesser of -(a) $10,000 (indexed for inflation), or

(b) 50 percent of the present value of

the nonforfeitable accrued benefit (vested

accrued benefit) of the employee under

the plan.

For example, Plan E is a section

403(b) plan that permits domestic abuse

victim distributions, and Taxpayer D is

a participant in Plan E. On August 15,

2024, Taxpayer D is eligible to receive a

domestic abuse victim distribution from

Plan E because Taxpayer D was a victim of domestic abuse on January 15,

2024. August 15, 2024, is less than one

year after the January 15, 2024, incident. On August 15, 2024, Taxpayer D

has a $15,000 vested account balance in

Plan E ($7,500 is 50 percent of Taxpayer

D’s vested account balance). Taxpayer D

requests a $7,500 domestic abuse victim

distribution from Plan E. Taxpayer D is

permitted to take a domestic abuse victim

35

distribution of $7,500 from Plan E (the

lesser of $7,500 (50 percent of Taxpayer

D’s vested account balance) and $10,000).

Q. B-5: How are the cost-of-living

adjustments made to the dollar limit for

domestic abuse victim distributions?

A. B-5: For taxable years beginning in

a calendar year after 2024, the $10,000

amount will be increased annually by an

amount equal to –

(a) The $10,000 dollar limitation, multiplied by

(b) The cost-of-living adjustment

determined under section 1(f)(3) for the

calendar year in which the taxable year

begins, determined by substituting calendar year 2023, for calendar year 2016 in

section 1(f)(3)(A)(ii).

If any amount after adjustment under

section 72(t)(2)(K)(vii) is not a multiple

of $100, the amount will be rounded to

the nearest multiple of $100. The adjusted

amounts will be provided in future guidance issued in the Internal Revenue Bulletin.

Q. B-6: May an individual repay a

domestic abuse victim distribution to an

applicable eligible retirement plan?

A. B-6: An individual may, at any time

during the 3-year period beginning on the

day after the date on which the distribution was received, repay any portion of a

domestic abuse victim distribution (up to

the entire amount of the domestic abuse

victim distribution) to an applicable eligible retirement plan in which the individual is a beneficiary and to which a rollover

can be made under section 402(c), 403(a)

(4), 403(b)(8), 408(d)(3), or 457(e)(16), as

applicable.

Questions and Answers Relating to

Applicable Eligible Retirement Plans

Permitting Domestic Abuse Victim

Distributions

Q. B-7: Is an applicable eligible retirement plan required to permit domestic

abuse victim distributions under section 72(t)(2)(K)?

A. B-7: It is optional for an applicable

eligible retirement plan to permit domestic abuse victim distributions pursuant to

section 72(t)(2)(K). Plan amendments

adopted to permit domestic abuse victim

distributions are discretionary amendments for purposes of the plan amendment

July 8, 2024

rules discussed in Section II.J. of Notice

2024-02. For information relating to the

deadline for adopting plan amendments,

see Section II.J of Notice 2024-02.

If an applicable eligible retirement plan

does not permit domestic abuse victim

distributions, the individual is permitted

to treat an otherwise permissible distribution as a domestic abuse victim distribution. See Q&A B-14 of this notice.

Q. B-8: Do domestic abuse victim

distributions from an applicable eligible retirement plan meet the distribution

restriction requirements in sections 401(k)

(2)(B)(i), 403(b)(7)(A)(i), 403(b)(11), and

457(d)(1)(A)?

A. B-8: If the employee or participant

certifies that the employee or participant is

eligible to receive a domestic abuse victim

distribution, then the distribution is treated

as meeting the distribution restrictions for

qualified cash or deferred arrangements

under section 401(k)(2)(B)(i), custodial

accounts under section 403(b)(7)(A)(i),

annuity contracts under section 403(b)(11),

and governmental deferred compensation

plans under section 457(d)(1)(A). Thus,

for example, an employer may expand the

distribution options under its plan to allow

an amount attributable to elective, qualified

nonelective, qualified matching, or safe

harbor contributions under a section 401(k)

plan to be distributed as a domestic abuse

victim distribution.

Q. B-9: What are the certification

requirements for a domestic abuse victim

distribution?

A. B-9: Pursuant to section 72(t)(2)(K)

(vi)(III), any distribution that an employee

or participant certifies as a domestic abuse

victim distribution will be treated as meeting the distribution restriction requirements

under the Code for the applicable eligible

retirement plan. To meet the certification

requirements of section 72(t)(2)(K)(vi)

(III), the employee or participant could

check the box on the distribution request

form to certify that (1) the employee or

participant is eligible for a domestic abuse

victim distribution and (2) the distribution

is made during the 1-year period beginning on any date on which the individual

is a victim of domestic abuse. The certification must be provided in writing and the

employee or participant may use the electronic delivery rules in §1.401(a)-21(d) to

provide the certification.

July 8, 2024

Q. B-10: Is a domestic abuse victim

distribution treated by an applicable eligible retirement plan as an eligible rollover

distribution for purposes of the direct rollover rules, section 402(f) notice requirements, and the mandatory withholding

rules?

A. B-10: A domestic abuse victim

distribution is not treated as an eligible

rollover distribution for purposes of the

direct rollover rules under section 401(a)

(31), the notice requirement under section

402(f), and the mandatory withholding

rules under section 3405. Thus, the plan

is not required to offer an individual a

direct rollover with respect to a domestic abuse victim distribution. In addition,

the administrator is not required to provide a section 402(f) notice. Finally, the

administrator or payor of the domestic

abuse victim distribution is not required

to withhold an amount equal to 20 percent

of the distribution, as generally is required

in section 3405(c)(1). However, a domestic abuse victim distribution is subject

to the withholding requirements of section 3405(b) and § 35.3405-1T.

Q. B-11: If an applicable eligible retirement plan permits domestic abuse victim

distributions, is the plan required to accept

a repayment of that distribution to the

plan?

A. B-11: An applicable eligible retirement plan must accept the repayment of

a domestic abuse victim distribution from

an individual if the following apply:

(a) the plan permits domestic abuse

victim distributions;

(b) the individual received a domestic

abuse victim distribution from that plan;

and

(c) the individual is eligible to make

a rollover contribution to that plan at the

time the individual wishes to repay the

domestic abuse victim distribution to the

plan.

Q. B-12: Is a repayment of a domestic

abuse victim distribution from an applicable eligible retirement plan other than

an IRA treated as the direct transfer of an

eligible rollover distribution as defined in

section 402(c)(4)?

A. B-12: In the case of a repayment

of a domestic abuse victim distribution

from an applicable eligible retirement

plan other than an IRA, an individual is

treated as having received the distribu-

36

tion as an eligible rollover distribution

(as defined in section 402(c)(4)) and as

having transferred the amount to an applicable eligible retirement plan in a direct

trustee-to-trustee transfer within 60 days

of the distribution.

Q. B-13: Is a repayment of a domestic abuse victim distribution from an IRA

treated as the direct transfer of a distribution described in section 408(d)(3)?

A. B-13: In the case of a repayment of

a domestic abuse victim distribution from

an IRA, an individual is treated as having

received the distribution as a distribution

described in section 408(d)(3) and as having transferred the amount to an applicable eligible retirement plan in a direct

trustee-to-trustee transfer within 60 days

of the distribution.

Q. B-14: If an applicable eligible retirement plan does not permit domestic abuse

victim distributions, may an individual

treat an otherwise permissible distribution

as a domestic abuse victim distribution?

A. B-14: If an applicable eligible

retirement plan does not permit domestic

abuse victim distributions and an individual receives an otherwise permissible

distribution that meets the requirements

of a domestic abuse victim distribution

(as defined in Q&A B-1 of this notice),

the individual may treat the distribution

as a domestic abuse victim distribution

on the individual’s federal income tax

return to the extent the distribution meets

the limitation on a domestic abuse victim

distribution (see Q&A B-4 of this notice).

As part of the individual’s tax return, the

individual will claim on Form 5329 that

the distribution is a domestic abuse victim

distribution, in accordance with the form’s

instructions. The distribution, while includible in gross income, is not subject to the

10 percent additional tax under section

72(t)(1) pursuant to section 72(t)(2)(K). If

the individual decides to repay the amount

to an eligible retirement plan, the individual may, at any time during the 3-year

period beginning on the day after the date

on which the distribution was received,

repay the amount to an IRA.

IV. REQUEST FOR COMMENTS

The Treasury Department and the IRS

invite comments on all matters discussed

in this notice. In particular, the Treasury

Bulletin No. 2024–28

Department and the IRS invite comments

on whether the Secretary should adopt

regulations providing exceptions to the

rule that a plan administrator may rely

on an employee’s certification relating

to emergency personal expense distributions and procedures to address cases of

employee misrepresentation.

In addition, as mentioned in the Purpose section of this notice, the Treasury

Department and the IRS anticipate issuing regulations under section 72(t) and

invite general comments on section 72(t).

In particular, because the anticipated proposed regulations would address repayments of certain distributions under

section 72(t)(2) (for example, qualified

birth or adoption distributions under

section 72(t)(2)(H), emergency personal

expense distributions under section 72(t)

(2)(I), domestic abuse victim distributions under section 72(t)(2)(K), and terminal illness distributions under section

72(t)(2)(L)), the Treasury Department

and the IRS request comments relating

to repayments. For example, comments

are requested on the implementation

of the requirement that any repayment

made within the 3-year period beginning

on the day after the date the distribution

was received will be treated as a direct

trustee-to-trustee transfer within 60 days

of the distribution. Comments are also

requested on procedures for determining

whether a repayment meets the applicable requirements under section 72(t)

(2), particularly whether it would be

helpful if the anticipated proposed regulations would permit an administrator

to rely on an individual’s certification

that any requested repayment meets the

requirements under section 72(t)(2), is

made within the applicable 3-year time

period,7 and does not exceed the amount

of the distribution with respect to which

a repayment is being made.

Comments should be submitted in

writing on or before October 7, 2024,

and should include a reference to Notice

2024-55. Comments may be submitted

electronically via the Federal eRulemaking Portal at www.regulations.gov (type

“IRS Notice 2024-55” in the search field

on the Regulations.gov home page to find

this notice and submit comments). Alternatively, comments may be submitted by

mail to: Internal Revenue Service, Attn:

CC:PA:LPD:PR (Notice 2024-55), Room

5203, P.O. Box 7604, Ben Franklin Station, Washington, D.C. 20044.

The Treasury Department and the IRS

will publish for public availability any

comment submitted electronically or on

paper to its public docket.

V. PAPERWORK REDUCTION ACT

The collection of information contained in this notice has been submitted to

the Office of Management and Budget in

accordance with the Paperwork Reduction

Act (PRA) (44 U.S.C. 3507) under control number 1545-2317. 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 OMB control number. The information collection requirements in section III.A and

B will be submitted to OMB for review

and approval in accordance with 5 CFR

1320.10.

Pursuant to section 72(t)(2)(I)(iv),

Q&A A-9 of this notice provides that, in

determining whether an employee is eligible for an emergency personal expense

distribution, an administrator of an applicable eligible retirement plan is permitted

to rely on an employee’s written certification that the employee is eligible for an

emergency personal expense distribution.

Q&A B-9 of this notice provides that,

to meet the certification requirements of

section 72(t)(2)(K)(vi)(III), an individual could check the box on the distribution request form to certify that (1) the

employee or participant is eligible for a

domestic abuse victim distribution and (2)

the distribution is made during the 1-year

period beginning on any date on which the

individual is a victim of domestic abuse.

The certification must be provided in

writing and the employee or participant

may use the electronic delivery rules in

§1.401(a)-21(d) to provide the certification.

According to the Bureau of Labor and

Statistics, determined as of March 2023,

approximately 45 percent of civilian

workers in the United States participated

in defined contribution plans. The population of civilian workers represented by

the March 2023 National Compensation

Survey (NCS) was 145,300,100. Using

45 percent of the population reported

in the NCS survey, approximately

65,385,045 civilian workers participated

in defined contribution plans in March

2023.

Sections 115 and 314 of the SECURE

2.0 Act became effective January 1, 2024.

The IRS does not have all the data necessary for determining paperwork for certifications of emergency personal expense

and domestic victim abuse distributions.

At this point, the IRS does not know

how many applicable eligible retirement

plans will offer these distributions or how

many employees will request these distributions from applicable eligible retirement plans. Therefore, the paperwork

burden is based on an estimated range

of the number of employees who would

apply for either an emergency personal

expense distribution or a domestic abuse

victim distribution from an applicable

eligible retirement plan that permits such

distributions.

The collection of information is

required to obtain a benefit. For Q&A

A-9 of this notice, the likely respondent is

an individual who is requesting an emergency personal expense distribution from

an applicable eligible retirement plan, as

described in section 72(t)(2)(I)(iv), and

self-certifying that the individual is eligible for an emergency personal expense

distribution.

Estimated total annual reporting burden: 3,750 to 7,500 hours.

Estimated average annual burden per

respondent: 3 minutes.

Estimated number of respondents:

75,000 to 150,000 respondents.

Estimated frequency of responses: 1

per distribution request.

For Q&A B-9 of this notice, the likely

respondent is an individual who is requesting a domestic abuse victim distribution

But see section 311(b)(2) of the SECURE 2.0 Act for a special temporary rule on the effective date of the 3-year rule for repayments relating to qualified birth or adoption distributions made

on or before the date of enactment of the SECURE 2.0 Act.

7

Bulletin No. 2024–28

37

July 8, 2024

from an applicable eligible retirement

plan, as defined in section 72(t)(2)(K)(vi)

(I), and self-certifying that the individual

is eligible for a domestic abuse victim distribution and that the distribution is made

during the 1-year period beginning on any

date on which the individual is a victim of

domestic abuse.

Estimated total annual reporting burden: 3,750 to 7,500 hours.

Estimated average annual burden per

respondent: 3 minutes.

July 8, 2024

Estimated number of respondents:

75,000 to 150,000 respondents.

Estimated frequency of responses: 1

per distribution request.

Books or records relating to a collection of information must be retained

as long as their contents may become

material in the administration of any

internal revenue law. Generally, tax

returns and tax return information

are confidential, as required by section 6103 of the Code.

38

VI. DRAFTING INFORMATION

The principal authors of this notice are

Naomi Lehr, Vernon Carter, and Pamela

R. Kinard of the Office of Associate Chief

Counsel (Employee Benefits, Exempt

Organizations, and Employment Taxes).

For further information regarding this

notice, please contact Mr. Vernon Carter at

(202) 317-6799, Ms. Naomi Lehr at (202)

317-4102, or Ms. Pamela Kinard at (202)

317-6000 (not toll-free numbers).

Bulletin No. 2024–28

Part IV

Deletions From Cumulative

List of Organizations,

Contributions to Which are

Deductible Under Section

170 of the Code

Announcement 2024-28

Table of Contents

The Internal Revenue Service has

revoked its determination that the organizations listed below qualify as organizations described in sections 501(c)(3) and

170(c)(2) of the Internal Revenue Code of

1986.

Generally, the IRS will not disallow

deductions for contributions made to a

listed organization on or before the date

of announcement in the Internal Revenue

Bulletin that an organization no longer

qualifies. However, the IRS is not precluded from disallowing a deduction for

any contributions made after an organization ceases to qualify under section 170(c)

(2) if the organization has not timely filed

a suit for declaratory judgment under section 7428 and if the contributor (1) had

knowledge of the revocation of the ruling

or determination letter, (2) was aware that

such revocation was imminent, or (3) was

in part responsible for or was aware of the

activities or omissions of the organization

that brought about this revocation.

Effective Date of

Revocation

3/1/2020

1/1/2020

Name Of Organization

Mary Duque Juniors of Children’s Hospital Los Angeles

Leadville-Lake County Chamber of Commerce Foundation

Bulletin No. 2024–28

If on the other hand a suit for declaratory judgment has been timely filed,

contributions from individuals and organizations described in section 170(c)(2)

that are otherwise allowable will continue

to be deductible. Protection under section

7428(c) would begin on July 08, 2024, and

would end on the date the court first determines the organization is not described in

section 170(c)(2) as more particularly set

for in section 7428(c)(1). For individual

contributors, the maximum deduction protected is $1,000, with a husband and wife

treated as one contributor. This benefit is

not extended to any individual, in whole

or in part, for the acts or omissions of the

organization that were the basis for revocation.

39

Location

Los Angeles, CA

Leadville, Co

July 8, 2024

Notice of Proposed

Rulemaking

Certain Partnership

Related-Party Basis

Adjustment Transactions as

REG-124593-23

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Notice of proposed rulemaking

and public hearing.

SUMMARY: This document contains

proposed regulations that would identify

certain partnership related-party basis

adjustment transactions and substantially

similar transactions as transactions of

interest, a type of reportable transaction.

Material advisors and certain participants

in these transactions would be required to

file disclosures with the IRS and would be

subject to penalties for failure to disclose.

The proposed regulations would affect

participants in these transactions as well

as material advisors. This document also

provides a notice of a public hearing on

the proposed regulations.

DATES: Comments due: Written or electronic comments must be received by

August 19, 2024.

Public hearing: A public hearing on this

proposed regulation has been scheduled

for Tuesday, September 17, 2024, at 10

a.m. ET. Requests to speak and outlines of

topics to be discussed at the public hearing must be received by August 19, 2024.

If no outlines are received by August 19,

2024, the public hearing will be cancelled.

Requests to attend the public hearing must

be received by 5 p.m. ET on September

13, 2024. The public hearing will be made

accessible to people with disabilities.

Requests for special assistance during the

public hearing must be received by 5 p.m.

ET on September 12, 2024.

ADDRESSES: Commenters are strongly

encouraged to submit public comments

electronically via the Federal eRulemak-

July 8, 2024

ing Portal at https://www.regulations.

gov (indicate IRS and REG-124593-23)

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-124593-23), room

5203, Internal Revenue Service, P.O.

Box 7604, Ben Franklin Station, Washington, DC 20044.

FOR FURTHER INFORMATION

CONTACT: Concerning the proposed

regulations, Elizabeth Zanet of the Office

of Associate Chief Counsel (Passthroughs

and Special Industries), (202) 317-6007;

concerning the submission of comments

or the hearing, Vivian Hayes at (202) 3176901 (not toll-free numbers) or by email at

publichearings@irs.gov (preferred).

SUPPLEMENTARY INFORMATION:

Background

This document contains proposed additions to the Income Tax Regulations (26

CFR part 1) under section 6011 of the

Internal Revenue Code (Code). The proposed additions would add §1.6011-18 to

identify certain partnership related-party

basis adjustment transactions as transactions of interest for purposes of section

6011 (proposed regulations).

I. Disclosure of Reportable Transactions

by Participants and Penalties for Failure

to Disclose

Section 6011(a) generally provides

that, if required by regulations prescribed

by the Secretary of the Treasury or her

delegate (Secretary), any person made

liable for any tax imposed by the Code,

or with respect to the collection thereof,

must make a return or statement according

to the forms and regulations prescribed by

the Secretary. Every person required to

make a return or statement must include

40

therein the information required by such

forms or regulations.

Section 1.6011-4(a) provides that

every taxpayer that has participated in a

reportable transaction within the meaning of §1.6011-4(b) and who is required

to file a tax return must file a disclosure

statement within the time prescribed in

§1.6011-4(e).

Reportable transactions are identified

in §1.6011-4 and include listed transactions, confidential transactions, transactions with contractual protection, loss

transactions, and transactions of interest.

See §1.6011-4(b)(2) through (6). Section

1.6011-4(b)(6) defines a “transaction of

interest” as a transaction that is the same

as or substantially similar to one of the

types of transactions that the IRS has identified by notice, regulation, or other form

of published guidance as a transaction of

interest.

Section 1.6011-4(c)(4) provides that a

transaction is “substantially similar” if it

is expected to obtain the same or similar

types of tax consequences and is either

factually similar or based on the same or

similar tax strategy. Receipt of an opinion regarding the tax consequences of the

transaction is not relevant to the determination of whether the transaction is the

same as or substantially similar to another

transaction. Further, the term substantially

similar must be broadly construed in favor

of disclosure. For example, a transaction

may be substantially similar to a transaction of interest even though it may involve

different entities or use different Code provisions.

Section 1.6011-4(c)(3)(i)(E) provides

that a taxpayer has participated in a transaction of interest if the taxpayer is one of

the types or classes of persons identified

as participants in the transaction in the

published guidance describing the transaction of interest.

Section 1.6011-4(d) and (e) provide

that the disclosure statement, Form 8886,

Reportable Transaction Disclosure Statement (or successor form), must be attached

to the taxpayer’s tax return for each taxable year in which a taxpayer participates

in a reportable transaction. A copy of

the disclosure statement must be sent to

the IRS’s Office of Tax Shelter Analysis

(OTSA) at the same time that any disclosure statement is first filed by the taxpayer

Bulletin No. 2024–28

pertaining to a particular reportable transaction.

Section 1.6011-4(e)(2)(i) provides

that if a transaction becomes a transaction of interest after the filing of a taxpayer’s tax return (including an amended

return) reflecting the taxpayer’s participation in the transaction of interest and

before the end of the period of limitations for assessment for any taxable year

in which the taxpayer participated in the

transaction of interest, then a disclosure statement must be filed with OTSA

within 90 calendar days after the date on

which the transaction becomes a transaction of interest. This requirement extends

to an amended return and exists regardless of whether the taxpayer participated

in the transaction in the year the transaction became a transaction of interest.

The Commissioner of Internal Revenue

(Commissioner) may also determine the

time for disclosure of transactions of

interest in the published guidance identifying the transaction.

Participants required to disclose these

transactions under §1.6011-4 who fail to

do so are subject to penalties under section 6707A of the Code. Section 6707A(b)

provides that the amount of the penalty is

75 percent of the decrease in tax shown

on the return as a result of the reportable

transaction (or which would have resulted

from such transaction if such transaction

were respected for Federal tax purposes),

subject to minimum and maximum penalty amounts. The minimum penalty

amount is $5,000 in the case of a natural

person and $10,000 in any other case. For

a transaction of interest, the maximum

penalty amount is $10,000 in the case of

a natural person and $50,000 in any other

case.

Additional penalties may also apply.

In general, section 6662A of the Code

imposes a 20 percent accuracy-related

penalty on any understatement (as defined

in section 6662A(b)(1)) attributable to

an adequately disclosed reportable transaction. If the taxpayer had a requirement

to disclose participation in the reportable

transaction but did not adequately disclose

the transaction in accordance with the regulations under section 6011, the taxpayer

is subject to an increased penalty rate

equal to 30 percent of the understatement.

See section 6662A(c). Section 6662A(b)

Bulletin No. 2024–28

(2) provides that section 6662A applies to

any item which is attributable to any listed

transaction and any reportable transaction

(other than a listed transaction) if a significant purpose of such transaction is the

avoidance or evasion of Federal income

tax.

II. Disclosure of Reportable Transactions

by Material Advisors and Penalties for

Failure to Disclose

Section 6111(a) provides that each

material advisor with respect to any

reportable transaction must make a return

setting forth: (1) information identifying

and describing the transaction, (2) information describing any potential tax benefits expected to result from the transaction, and (3) such other information as the

Secretary may prescribe. Such return must

be filed not later than the date specified by

the Secretary.

Section 301.6111-3(a) of the Procedure

and Administration Regulations (26 CFR

part 301) provides that each material advisor with respect to any reportable transaction, as defined in §1.6011-4(b), must file

a return as described in §301.6111-3(d) by

the date described in §301.6111-3(e).

Section 301.6111-3(b)(1) provides that

a person is a material advisor with respect

to a transaction if the person provides any

material aid, assistance, or advice with

respect to organizing, managing, promoting, selling, implementing, insuring, or

carrying out any reportable transaction,

and directly or indirectly derives gross

income in excess of the threshold amount

as defined in §301.6111-3(b)(3) for the

material aid, assistance, or advice. Under

§301.6111-3(b)(2)(i) and (ii), a person

provides material aid, assistance, or advice

if the person provides a tax statement,

which is any statement (including another

person’s statement), oral or written, that

relates to a tax aspect of a transaction that

causes the transaction to be a reportable

transaction as defined in §1.6011-4(b)(2)

through (7).

Material advisors must disclose transactions on Form 8918, Material Advisor

Disclosure Statement (or successor form),

as provided in §301.6111-3(d) and (e).

Section 301.6111-3(e) provides that the

material advisor’s disclosure statement for

a reportable transaction must be filed with

41

the OTSA by the last day of the month

that follows the end of the calendar quarter in which the advisor becomes a material advisor with respect to a reportable

transaction or in which the circumstances

necessitating an amended disclosure

statement occur. A person may become a

material advisor with respect to a transaction that is later identified as a transaction of interest. See §301.6111-3(b)(4).

The disclosure statement must be sent to

the OTSA at the address provided in the

instructions for Form 8918 (or successor

form).

Section 301.6111-3(d)(2) provides that

the IRS will issue to a material advisor a

reportable transaction number with respect

to the disclosed reportable transaction.

Receipt of a reportable transaction number does not indicate that the disclosure

statement is complete, nor does it indicate

that the transaction has been reviewed,

examined, or approved by the IRS. Material advisors must provide the reportable

transaction number to all taxpayers for

whom the material advisor acts as a material advisor as defined in §301.6111-3(b).

The reportable transaction number must

be provided at the time the transaction is

entered into, or if the transaction is entered

into prior to the material advisor receiving

the reportable transaction number, within

60 calendar days from the date the reportable transaction number is mailed to the

material advisor.

Section 6707(a) of the Code provides

that a material advisor who fails to file a

timely disclosure, or files an incomplete

or false disclosure statement, is subject

to a penalty. Pursuant to section 6707(b)

(1), the penalty for reportable transactions

other than listed transactions, including

transactions of interest, is $50,000.

Additionally, section 6112(a) of the

Code provides that each material advisor

with respect to any reportable transaction,

whether or not required to file a return

under section 6111 with respect to such

transaction, must maintain a list (1) identifying each person with respect to whom

such advisor acted as a material advisor

with respect to such transaction and (2)

containing such other information as the

Secretary may by regulations require.

Material advisors must furnish such lists

to the IRS in accordance with §301.61121(e).

July 8, 2024

A material advisor may be subject to

a penalty under section 6708 of the Code

for failing to maintain a list under section

6112(a) and failing to make the list available upon written request to the Secretary

in accordance with section 6112(b) within

20 business days after the date of request.

Section 6708(a) provides that the penalty

is $10,000 per day for each day of the failure after the 20th day. However, no penalty will be imposed with respect to the

failure on any day if such failure is due to

reasonable cause.

III. Basis Adjustments under

Subchapter K

A. In general

Under subchapter K of chapter 1 of the

Code (subchapter K), a distr

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