# Bulletin No. 2024–28

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## Record

- **Collection:** Agency decision
- **Document type:** Agency decision

## Text

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

Bulletin No. 2024–28

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.
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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

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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

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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).
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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

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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 secti

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Airs%3A0f4df038444bf0ae. Public record. Not legal advice.