These synopses are intended only as aids to the reader in

HIGHLIGHTS

OF THIS ISSUE





Bulletin No. 2025–6

February 3, 2025

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.

ADMINISTRATIVE,

EXEMPT ORGANIZATIONS

average segment rates applicable for January 2025, and the

30-year Treasury rates, as reflected by the application of §

430(h)(2)(C)(iv).

Rev. Proc. 2025-6, page 713.

EXCISE TAX

This revenue procedure provides the exclusive procedures

for certain applicable entities, as defined in § 6417(d)(1)(A)

of the Internal Revenue Code and the regulations thereunder that are not required to file either a federal income tax

return under § 6011 or an annual information return under

§ 6033(a), but previously filed a Form 990-T solely to make

an elective payment election under § 6417, to change their

annual accounting period.

ADMINISTRATIVE, INCOME TAX

T.D. 10028, page 660.

This document contains final regulations that identify certain

partnership related-party basis adjustment transactions and

substantially similar transactions as transactions of interest,

a type of reportable transaction. Material advisors and certain participants in these transactions are required to file disclosures with the IRS and are subject to penalties for failure

to disclose. The regulations affect participants in these transactions as well as material advisors.

EMPLOYEE PLANS

Notice 2025-13, page 710.

This notice sets forth updates on the corporate bond

monthly yield curve, the corresponding spot segment rates

for December 2024 used under § 417(e)(3)(D), the 24-month

Finding Lists begin on page ii.

REG-115560-23, page 716.

Section 5000D of the Internal Revenue Code imposes

an excise tax on applicable sales of designated drugs by

manufacturers, producers, and importers during statutorily

defined periods. This Notice of Proposed Rulemaking contains proposed rules relating to the imposition and calculation of that excise tax.

INCOME TAX

Notice 2025-9, page 681.

This notice provides safe harbors regarding the incremental

cost and retail price equivalent of certain qualified commercial

clean vehicles for purposes of the credit for qualified commercial clean vehicles under section 45W of the Internal Revenue

Code.

Notice 2025-10, page 682.

Notice 2025-10 announces forthcoming proposed regulations

on the clean fuel production credit under § 45Z (§ 45Z credit),

enacted under the Inflation Reduction Act of 2022. In addition to providing background on the § 45Z credit, the notice

explains the forthcoming proposed regulations and requests

public comments on the draft text of the forthcoming proposed regulations contained in the appendix.

Notice 2025-11, page 704.

Notice 2025-11 provides taxpayers with guidance about

emissions rates, including the initial emissions rate table,

for the clean fuel production credit. For a transportation

fuel established on the emissions rate table that is not

a sustainable aviation fuel, this notice directs a taxpayer

producing such fuel to calculate emissions rates using the

most recent determinations under the new 45ZCF-GREET

model. For a transportation fuel established on the emissions rate table that is a sustainable aviation fuel, this

notice directs a taxpayer producing such fuel to calculate emissions rates using either determinations from fuel

pathways approved under the most recent version of the

CORSIA Program or the most recent determinations under

the 45ZCF-GREET model. This notice also requests public

comments.

REG-123525-23, page 726.

Section 45W of the Internal Revenue Code provides a credit

against the tax imposed by chapter 1 of the Code with respect

to each qualified commercial clean vehicle placed in service

by a taxpayer during the taxable year. This Notice of Proposed

Rulemaking proposes rules under section 45W relating to vehicle credit eligibility, credit amount determination, and credit

reporting.

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.

February 3, 2025 

Bulletin No. 2025–6

Part I

26 CFR 1.6011-18: Certain partnership related-party basis adjustment transactions as transactions of interest.

T.D. 10028

DEPARTMENT OF THE

TREASURY

Internal Revenue Service

26 CFR Part 1

Certain Partnership

Related-Party Basis

Adjustment Transactions as

Transactions of Interest

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Final rule.

SUMMARY: This document contains

final regulations that identify certain partnership related-party basis adjustment

transactions and substantially similar

transactions as transactions of interest,

a type of reportable transaction. Material advisors and certain participants in

these transactions are required to file disclosures with the IRS and are subject to

penalties for failure to disclose. The final

regulations affect participants in these

transactions as well as material advisors.

DATES: Effective date: These regulations

are effective on January 14, 2025.

Applicability date: For the date of

applicability, see § 1.6011-18(h) and (i).

FOR FURTHER INFORMATION

CONTACT: Concerning these final

regulations, contact Elizabeth Zanet of

the Office of Associate Chief Counsel

(Passthroughs and Special Industries),

(202) 317-6007 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Authority

This document amends the Income Tax

Regulations (26 CFR part 1) by adding

February 3, 2025

final regulations under section 6011 of the

Internal Revenue Code (Code). The document adds § 1.6011-18 to identify certain

partnership related-party basis adjustment

transactions and substantially similar

transactions as transactions of interest, a

type of reportable transaction (final regulations). These regulations are issued

pursuant to the authority conferred on the

Secretary of the Treasury or her delegate

(Secretary) under the following provisions

of the Code.

Section 6001 of the Code provides

an express delegation of authority to the

Secretary of the Treasury or her delegate

(Secretary), requiring every taxpayer to

keep the records, render the statements,

make the returns, and comply with the

rules and regulations that the Secretary

deems necessary to demonstrate tax liability, as prescribed, either by notice served

or by regulations.

Section 6011(a) provides an express

grant of regulatory authority for the Secretary to prescribe regulations requiring any person who is liable for any tax

imposed by the Code, or with respect to

the collection thereof, to make a return or

statement according to the forms and regulations prescribed by the Secretary. Section 6011(a) adds that every person who

is required to make a return or statement

must include the information required by

forms or regulations.

In addition, section 6707A(c)(1) of the

Code defines the term “reportable transaction” for purposes of imposing penalties

under section 6707A(a) relating to persons who fail to include on any return or

statement any information with respect to

a reportable transaction that is required

under section 6011 to be included with

such return or statement. In doing so, it

provides an express delegation of authority to the Secretary, stating that, “[t]he

term ‘reportable transaction’ means any

transaction with respect to which information is required to be included with

a return or statement because, as determined under regulations prescribed under

section 6011, such transaction is of a type

which the Secretary determines as having

a potential for tax avoidance or evasion.”

Section 6111(a) provides an express

grant of regulatory authority for the Sec-

660

retary to require that each material advisor

with respect to any reportable transaction

make a return setting forth any information as the Secretary may prescribe. Such

return must be filed not later than the date

specified by the Secretary.

Finally, section 7805(a) of the Code

authorizes the Secretary to “prescribe

all needful rules and regulations for the

enforcement of [the Code], including all

rules and regulations as may be necessary

by reason of any alteration of law in relation to internal revenue.”

Background

I. Basis Adjustments under Subchapter K

A. 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 key factor

is whether an election made by the partnership in accordance with regulations

prescribed by the Secretary under section

754 of the Code (section 754 election) is

in effect.

Section 754 provides that if a section

754 election is in effect for a partnership,

the basis of its partnership property will

be adjusted, in the case of a distribution

of property, in the manner provided by

section 734 of the Code, and in the case

of a transfer of a partnership interest, in

the manner provided in section 743 of

the Code. Unless a section 754 election

is revoked in accordance with the regulations under section 754, the section

754 election applies to all distributions

of property by the partnership and to all

transfers of interests in the partnership in

the taxable year for which the section 754

election was properly made and all subsequent taxable years.

In the case of a distribution of partnership property to a partner by a partnership for which a section 754 election is

in effect, or with respect to which there is

a substantial basis reduction as described

Bulletin No. 2025–6

in section 734(d), the distribution may

result in an adjustment to the basis of the

partnership’s remaining property (remaining partnership property) under section

734(b). A distribution of partnership property may also result in an adjustment to

the basis of the distributed property under

section 732(a), (b), or (d) of the Code.

If a partnership interest is transferred

by sale or exchange or on the death of a

partner, and the partnership either has

a section 754 election in effect or has a

substantial built-in loss with respect to

the transfer of the partnership interest as

described in section 743(d), the transfer

may result in an adjustment to the basis of

partnership property under section 743(b)

with respect to the transferee partner.

B. Basis adjustments under section 732

Section 732 applies to determine a

distributee partner’s basis in distributed

property other than money. In the case

of a distribution of partnership property

other than in liquidation of the distributee

partner’s partnership interest (current distribution), and except as provided under

section 732(a)(2), section 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 section

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 distribution of partnership property in liquidation of the

distributee partner’s partnership interest

(liquidating distribution), section 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.

In the case of a distribution of more

than one property from a partnership, the

basis of the distributed properties to which

section 732(a)(2) and (b) apply must be

allocated among the distributed properties

under the rules of section 732(c). Section

732(d) through (f) provide additional rules

Bulletin No. 2025–6

applicable to certain distributed property.

See also §§ 1.732-1 through 1.732-3.

C. Basis adjustments under section 734

In the case of a distribution of property by a partnership for which a section

754 election is 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 section 732, differs

from the partnership’s adjusted basis in

the distributed property immediately

before the distribution, section 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 section 734(d), the

basis of remaining partnership property

must be adjusted under section 734(b),

even if no section 754 election is in effect

for the partnership.

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

partnership property if a distribution of

partnership property by the partnership

results in the distributee partner recognizing gain under section 731(a)(1) of the

Code, or if property (other than money)

to which section 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 section 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 section 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 section 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 basis in the dis-

661

tributed property as determined under section 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 section 731(a)(2), or if property (other than

money) is distributed to the distributee

partner in a distribution to which section

732(b) applies 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 section 732.

Under section 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 in the distribution only

money, unrealized receivables described

in section 751(c) of the Code, or inventory items described in section 751(d).

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 section 732) of any unrealized receivables or

inventory items received by that partner in

the distribution. The amount of the basis

decrease to the partnership’s remaining

property under section 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 section 731(a)(2),

and the excess of the distributee partner’s

basis in the distributed property as determined under section 732, over the partnership’s adjusted basis in the distributed

property immediately before the distribution.

A partnership for which no section 754

election is in effect is subject to a mandatory basis adjustment under section 734(b)

(2) if there is a substantial basis reduction

with respect to a distribution of partnership property. Under section 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 distribu-

February 3, 2025

tee partner under section 732(b), exceeds

$250,000.

D. Basis adjustments under section

743(b)

Generally, if a partnership interest is

transferred 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 section 742 of the

Code and the basis of partnership property

is determined under section 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 section 1011 of

the Code and following. Thus, for example,

a transferee partner’s basis in a partnership

interest acquired by purchase generally is

the transferee partner’s cost basis under

section 1012 of the Code. 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 a section 754 election is in effect for

the partnership, or the partnership has a

substantial built-in loss with respect to the

transfer of the partnership interest.

Under section 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 for which a section 754 election is 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 for which no section

754 election is in effect is subject to a

February 3, 2025

mandatory basis adjustment under section 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 section 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

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.

The flush language at the end of section

743(b) provides that, under regulations

prescribed by the Secretary, a basis adjustment under section 743(b) is an adjustment to the basis of partnership property

with respect to the transferee partner only.

See generally § 1.743-1. 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 § 1.743-1(d).

In the case of a transferee partner who

acquired all or part of the partner’s partnership interest by a transfer with respect

to which no section 754 election was in

effect for the partnership, and to whom

a distribution of property (other than

money) is made with respect to the transferred interest within two years, section

732(d) and the regulations thereunder

allow the partner to make an election to

treat as the adjusted basis of the distributed

property the adjusted basis such property

would have if the adjustment under section 743(b) were in effect with respect to

the partnership property.

Under § 1.732-1(d)(4), the special

basis adjustment under section 732(d) is

required to apply to a distribution of property to a partner who acquired all or part

of the partner’s partnership interest by a

transfer from a partnership for which no

section 754 election is in effect for the taxable year of such transfer, whether or not

the distribution is made within two years

of such transfer, if at the time the partnership interest was transferred, (i) the fair

market value of all partnership property

662

(other than money) exceeded 110 percent

of its adjusted basis to the partnership,

(ii) an allocation of basis under section

732(c) upon a liquidation of the transferee

partner’s interest in the partnership immediately after the transfer of such interest

would have resulted in a shift of basis

from property not subject to an allowance

for depreciation, depletion, or amortization to property subject to such an allowance, and (iii) a basis adjustment under

section 743(b) would change the basis to

the transferee partner of the property actually distributed.

E. Allocation of basis adjustments under

sections 734 and 743

Section 734(c) states that a basis

adjustment under section 734(b) is allocated among partnership properties under

the rules of section 755 of the Code. Section 743(c) states that a basis adjustment

under section 743(b) is allocated among

partnership properties under the rules of

section 755.

Section 755(a) generally requires basis

adjustments under section 734(b) or section 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 prescribed by the Secretary.

In addition, section 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 section 734(b) to the

stock of a corporation that is a partner of

the partnership (or that is related to a partner in the partnership within the meaning

of section 267(b) of the Code or section

707(b)(1) of the Code).

F. Common terminology for bases with

respect to a partnership interest

A partner’s adjusted basis in its partnership interest commonly is referred to

Bulletin No. 2025–6

as the partner’s “outside basis” in its partnership interest. A partnership’s adjusted

basis in its property commonly is referred

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

of inside basis.

II. Proposed Regulations

On June 18, 2024, the Department of

the Treasury (Treasury Department) and

the IRS published a notice of proposed

rulemaking (REG-124593-23) in the Federal Register (89 FR 51476) containing

proposed regulations under section 6011

(proposed regulations).1 The proposed

regulations would have added § 1.601118 identifying certain partnership related-party basis adjustment transactions

as “transactions of interest” for purposes

of sections 6011, 6111, and 6112 and §

1.6011-4(b)(6). The provisions of the proposed regulations are explained in greater

detail in the preamble to the proposed regulations.

The Treasury Department and the IRS

received written comments in response to

the proposed regulations. The comments

are available for public inspection at www.

regulations.gov or upon request. A public

hearing on the proposed regulations was

conducted in person and telephonically

on September 17, 2024, during which two

presenters provided comments. After full

consideration of the comments received,

these final regulations adopt the proposed

regulations with modifications in response

to the comments as described in the Summary of Comments and Explanation of

Revisions.

Summary of Comments and

Explanation of Revisions

This Summary of Comments and

Explanation of Revisions summarizes

the comments received in response to

the proposed regulations, and describes

and responds to comments concerning:

(1) transactions of interest generally, (2)

the usefulness and burden of reporting

the transactions of interest identified by

the proposed regulations, (3) the specific

transactions of interest identified by the

proposed regulations, (4) the proposed

1

$5 million threshold amount for reporting

(proposed $5 million threshold amount),

(5) the relatedness standard, (6) substantially similar transactions, and (7) participation in a transaction of interest identified

by the proposed regulations. In general,

as described herein, the final regulations

adopt several commenters’ suggestions,

which limit the scope of the transactions

identified by the proposed regulations

in an effort to exclude from additional

reporting certain common business transactions that do not meet large economic

thresholds.

Comments merely summarizing the

statute or proposed regulations, recommending revisions to the Code, addressing unrelated issues, or recommending

changes to IRS forms or procedures are

generally not addressed in this Summary

of Comments and Explanation of Revisions or adopted in these final regulations.

Additionally, this Treasury decision does

not address comments addressing the

issues and rules specific to Notice 202454, 2024-28 IRB 24, which the Treasury

Department and the IRS continue to consider. Unless otherwise indicated in this

Summary of Comments and Explanation

of Revisions, provisions of the proposed

regulations with respect to which no comments were received are adopted without

substantive change.

I. Transactions of Interest Generally

A. General reporting rules under §

1.6011-4

Section 1.6011-4(e)(2)(i) requires a

taxpayer to report a transaction entered

into prior to the publication of guidance

identifying the transaction as a transaction

of interest after the filing of the taxpayer’s

tax return (including an amended return)

reflecting the taxpayer’s participation in

the transaction of interest (later identified

transaction) if the statute of limitations for

assessment of tax is still open when the

transaction becomes a transaction of interest. Under § 1.6011-4(e)(2)(i), taxpayers

are generally required to report a later

identified transaction by filing a disclosure

statement with the Office of Tax Shelter

Analysis (OTSA) within 90 calendar

days after the date on which a transaction

becomes a transaction of interest.

Some commenters asserted that taxpayers should not be required to report later

identified transactions because taxpayers

were not on notice that certain partnership

related-party basis adjustment transactions would be identified as transactions of

interest. These commenters asserted that

certain of the transactions identified in the

proposed regulations are typical business

transactions for which taxpayers would

not have known to keep records. Two

commenters requested that the required

time for filing a disclosure statement with

the OTSA should be expanded to one year.

Another commenter recommended that

the final regulations apply prospectively

to transactions of interest that occur in taxable years beginning on or after the date of

the final regulations.

Although the reporting required by §

1.6011-4(e)(2)(i) may apply to transactions undertaken before the identification

of the transactions as transactions of interest, the disclosure obligation is prospective rather than retroactive, since it arises

only when the transaction becomes a

transaction of interest after the final regulations are published in the Federal Register. Additionally, taxpayers have been on

notice since the issuance of the proposed

regulations that reporting of partnership

related-party basis adjustment transactions may soon be required. Nevertheless,

given the additional time that taxpayers

may need to identify and prepare disclosures for already-completed transactions,

§ 1.6011-18(h)(1) provides an extension

of time of 90 additional calendar days

after the date specified in § 1.6011-4(e)(2)

(i) for taxpayers to meet their obligations

to disclose to the OTSA their participation

in such later identified transactions.

B. Material advisor rules

The proposed regulations provided no

special rules for material advisors. One

commenter requested that the final regulations add an “actual knowledge” qualifier

for material advisors such that advisors

would be required to disclose and list only

those transactions described by the proposed regulations that would be reportable

On July 24, 2024, a notice of correction was published in the Federal Register (89 FR 59864) to correct minor typographical errors in the preamble of REG-124593-23.

Bulletin No. 2025–6

663

February 3, 2025

based on their actual knowledge. The rules

for material advisors under sections 6111

and 6112, and the corresponding regulations under §§ 301.6111-3 and 301.6112-1

of the Procedure and Administration Regulations (26 CFR part 301), which apply

to all transactions of interest, do not have

a knowledge qualifier. After consideration

of this comment, the Treasury Department

and the IRS have determined that adding

a knowledge qualifier for this transaction

of interest is not warranted. Accordingly,

this comment is not adopted in the final

regulations.

One commenter requested that the final

regulations apply reporting requirements

for material advisors only prospectively

for transactions of interest that occur in

taxable years beginning on or after the

date of the final regulations, or, alternatively, that material advisors be permitted

to report transactions of interest to the

OTSA within one year as opposed to by

the last day of the month following the

end of the calendar quarter in which the

final regulations are published. Section

301.6111-3 sets forth the requirements

for disclosures from material advisors. In

particular, § 301.6111-3(e) provides that

a material advisor’s disclosure statement

must be filed with the OTSA by the last

day of the month that follows the end of

the calendar quarter in which the advisor

became a material advisor with respect

to the transaction. Section 301.6111-3(b)

(4)(iii) provides that for a transaction

that was not a reportable transaction but

is identified as a transaction of interest in

published guidance after the occurrence of

the events described in § 301.6111-3(b)(4)

(i), the person will be treated as becoming a material advisor on the date the

transaction is identified as a transaction

of interest. Additionally, material advisors

have been on notice since the issuance of

the proposed regulations that reporting of

partnership related-party basis shifting

transactions may soon be required. However, given the additional time that may

be needed for material advisors to identify

and prepare disclosures for already-completed transactions, § 1.6011-18(h)(2)

provides an extension of 90 additional

calendar days after the date specified in

§ 301.6111-3(e) for material advisors to

meet their disclosure obligations.

II. Usefulness and Burden of Reporting

the Transactions of Interest Identified by

the Proposed Regulations

A. Comments suggesting the IRS already

has the information it needs

One commenter stated that the Treasury Department and the IRS already

have sufficient information to determine

that the transactions identified by the proposed regulations are abusive and thus the

proposed regulations are unnecessary.2

This commenter stated that the Treasury

Department and the IRS have already

concluded that the transactions identified

in the proposed regulations are abusive

through IRS positions taken in litigation

and the issuance of Rev. Rul. 2024-14,

2024-28 IRB 18 (advising taxpayers that

the IRS would challenge certain partnership related-party basis adjustment

transactions under the codified economic

substance doctrine in section 7701(o) of

the Code). The commenter also asserted

that transactions of interest are reserved

for transactions that have the potential

for tax avoidance, but that the Treasury

Department and the IRS failed to articulate a rational connection between “the

facts found and the choice made.” Another

commenter suggested that the proposed

regulations relied on the application of

Rev. Rul. 2024-14, implying that the proposed regulations cannot have effect if the

IRS does not prevail in pending litigation.

The Treasury Department and the IRS

do not agree with these comments. The

final regulations identify certain partnership related-party basis adjustment transactions as transactions of interest under §

1.6011-4(b)(6), rather than as listed transactions under § 1.6011-4(b)(2). This is

because the Treasury Department and the

IRS have determined that these transactions have the potential for tax avoidance

through the IRS’s examination of certain

transactions that are abusive but are not

aware of the entire universe of partnership

related-party basis adjustment transactions and whether every transaction is per

se abusive. As explained in the preamble

to the proposed regulations, the Treasury

Department and the IRS have become

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 and wish

to gather additional information. This

awareness results from the IRS’s examination of various partnership transactions

involving related parties in which basis in

distributed property or partnership property is shifted in a manner that results in

significant tax benefits attributable to the

basis shift for the related parties but with

little or no tax or economic cost (abusive

partnership related-party basis adjustment

transactions), thus artificially generating

(or regenerating) Federal income tax benefits that results in significant tax savings

without a corresponding economic outlay.

The transactions identified as transactions

of interest in these final regulations have

the potential for tax avoidance because

they share certain indicia with these abusive partnership related-party transactions.

Rev. Rul. 2024-14 contains several examples of abusive transactions discovered by

the IRS, and the legal analysis it contains

is independent of the requirement to disclose the transactions described in these

regulations as transactions of interest. In

other words, the issuance of a revenue ruling does not preclude further scrutiny of

partnership related-party basis adjustment

transactions by identifying those transactions as transactions of interest. Similarly,

pending litigation is irrelevant to the identification of these transactions as transactions of interest. Accordingly, the final

regulations do not adopt these comments.

A few commenters questioned why the

Treasury Department and the IRS need to

identify certain partnership related-party

basis adjustment transactions as transactions of interest if these transactions are

already disclosed as part of the Form 1120,

U.S. Corporation Income Tax Return, or

Form 1065, U.S. Return of Partnership

Income. These commenters generally

contended that existing reporting requirements already accomplish the objectives

The commenter also argued that it would be inappropriate to identify the transactions identified in the proposed regulations as listed transactions under §1.6011-4(b)(2). This comment is not

relevant to these final regulations, which solely identify certain transactions as transactions of interest and not as listed transactions.

2

February 3, 2025

664

Bulletin No. 2025–6

of the proposed regulations and that adding these transactions as transactions of

interest is therefore unnecessary. One

commenter recommended that instead of

identifying the transactions described in

the proposed regulations as transactions of

interest, the Form 1065 should be modified to ask questions to determine whether

partnership related-party basis adjustment

transactions occurred during the taxable

year.

The Forms 1120 and 1065, including

statements or schedules required to be

attached thereto, are filed as a part of a

taxpayer’s tax return and do not include

all the information contained on Form

8886, Reportable Transaction Disclosure

Statement. The Forms 1120 and 1065 also

do not alert the OTSA to the taxpayer’s

participation in a transaction of interest,

nor does the filing of a tax return result in

disclosure and other obligations of material advisors to the transaction. Moreover,

the purpose of the reporting requirements

for a transaction of interest is to allow the

OTSA and the IRS to learn detailed information about the identified transaction

using limited resources, and without having to distill information obtained through

annual filing requirements or to open taxpayer examinations. Accordingly, these

comments are not adopted in the final regulations.

regulations (applicable threshold amounts)

discussed in Part IV of this Summary of

Comments and Explanation of Revisions,

or who may decide they need to file a

protective disclosure, is far outweighed

by the benefit of requiring disclosure for

the identified transactions, which have

the potential for tax avoidance. Combatting abusive tax avoidance is a priority for

the Federal Government and partnership

transactions that shift basis among related

parties without a corresponding economic

or tax impact have the potential for tax

avoidance. Moreover, the identification

of the transactions described in these final

regulations should not impact small business owners. If a taxpayer is engaging in

one or more of the complex transactions

identified by these final regulations with a

related party that results in positive basis

adjustments in a single taxable year that

exceed the applicable threshold amounts

of $10 million or more (or $25 million for

later identified transactions), the taxpayer

is not likely a small business owner and

the reporting obligations outlined in these

final regulations should not be unduly burdensome. Accordingly, these comments

are not adopted in the final regulations.

B. Comments addressing compliance

burdens and costs

A few commenters suggested that the

proposed regulations be withdrawn, stating that they are overbroad. One commenter suggested that due to the number

of their recommendations, the proposed

regulations should be reproposed. Another

commenter suggested that the proposed

regulations be withdrawn and reproposed

after the forthcoming proposed regulations described in Notice 2024-54 are

finalized. The final regulations are narrowly tailored to identify transactions in

which taxpayers may be exploiting the

mechanical basis adjustment provisions

in subchapter K to produce significant tax

benefits with little to no economic cost to

the partners. Taxpayers are able to engage

in these transactions because the parties

are related. In most cases, these transactions would not likely occur between partners negotiating on an arm’s length basis.

The purpose of the final regulations is to

determine the ways in which related tax-

Several commenters asserted that complying with the reporting requirements for

the transactions identified by the proposed

regulations would be unduly burdensome

and result in excessive costs for small

businesses. One commenter asserted that

the proposed regulations stray from Congressional intent of simplicity by subjecting family business owners and their

advisors to substantial reporting obligations and penalties. Another commenter

asserted that the proposed regulations

would result in many protective disclosures that the Treasury Department and

the IRS could not handle.

The impact on taxpayers who engage

in legitimate business transactions with

related parties resulting in positive partnership basis adjustments that meet the

increased threshold amounts in these final

Bulletin No. 2025–6

C. Comments requesting that the

proposed regulations be withdrawn or

reissued

665

payers are inappropriately shifting basis

using the provisions of subchapter K, how

they are creating opportunities to engage

in transactions that generate inappropriate

basis shifts (for example, how inside-outside basis disparities are being created),

and the economic impact of the Federal

income tax consequences created by the

basis shifting transactions (for example,

the extent to which gain is reduced or cost

recovery is increased). It is in the interest

of sound tax administration to gather this

information now. As disclosures pursuant

to this regulation will inform the Treasury

Department and the IRS on transactions

for which further examination or further

guidance may be warranted, it does not

make sense to withdraw the proposed regulations and wait to repropose them until

the forthcoming regulations described in

Notice 2024-54 are both proposed and

finalized. Moreover, these final regulations are separate from, and do not rely

on, the forthcoming proposed regulations

described in Notice 2024-54. The comments to these proposed regulations have

been helpful and have allowed the Treasury Department and the IRS to make

several modifications in response to comments that limit the scope of the rules, as

described in this Summary of Comments

and Explanation of Revisions.

III. Transactions of Interest Identified in

the Proposed Regulations

The proposed regulations would have

identified four kinds of partnership related-party basis adjustment transactions as

transactions of interest. A basis adjustment

transaction under proposed § 1.6011-18(c)

(1)(i) would occur if a partnership distributes property to a person who is a related

partner in a current or liquidating distribution, the partnership increases the basis

of one or more of its remaining properties

under section 734(b) and (c), and a proposed $5 million threshold amount is met

(section 734(b) TOI). A basis adjustment

transaction under proposed § 1.6011-18(c)

(1)(ii) would occur if a partnership distributes property to a partner who is related

to one or more partners in liquidation of a

partnership interest (or in complete liquidation of the partnership), the basis of one

or more distributed properties is increased

under section 732(b) and (c), and a pro-

February 3, 2025

posed $5 million threshold amount is met

(section 732(b) TOI). A basis adjustment

transaction under proposed § 1.601118(c)(1)(iii) would occur if a partnership

distributes property to a partner who is

related to one or more partners, the basis

of one or more distributed properties is

increased under section 732(d), the related

partner acquired all or a part of its interest in the partnership in a transaction that

would have been a transaction described

in proposed § 1.6011-18(c)(2) if the partnership had a section 754 election in effect

for the year of transfer, and a proposed $5

million threshold amount is met (section

732(d) TOI). A basis adjustment transaction under proposed § 1.6011-18(c)(2)

would occur if a partner transfers an interest in the partnership to a related transferee or to a person who is related to one

or more existing partners in a nonrecognition transaction (as defined in proposed §

1.6011-18(b)(6)), the basis of one or more

partnership properties is increased under

section 743(b)(1) and (c), and a proposed

$5 million threshold amount is met (section 743(b) TOI).

ment does not provide a shorter recovery

period, and (3) the property receiving

the basis increase is not sold within two

years of the basis increase. The Treasury

Department and the IRS agree that a basis

shift to a like-kind asset that has the same

or a longer recovery period than the asset

to which the basis was shifted from presents less risk of tax avoidance. However,

the Treasury Department and the IRS do

not agree that it would be appropriate in

such circumstances to require reporting

only if the property is disposed of within

two years after the basis increase as there

is still a potential for abuse if the property

is disposed of after two years. A two-year

rule would allow related taxpayers to

increase the basis in property in anticipation of a future sale and would exclude

transactions that present significant risks

of tax avoidance. Accordingly, it is in the

interest of sound tax administration to

identify certain partnership related-party

basis adjustment transactions as transactions of interest in the year of the basis

shift and the commenter’s recommendation is not adopted in the final regulations.

A. General reporting exclusions

3. Requiring knowledge or intent

1. Tax-avoidance indicators

A few commenters recommended

including an intent requirement for the

transactions identified by the proposed

regulations as transactions of interest.

One commenter recommended that taxpayers that are unaware of or have no reason to know that a transaction identified

by the proposed regulations is reportable

be excused from disclosure. Another commenter recommended including a subjective test for intent and providing safe

harbors and exceptions for business separations and succession-planning transactions.

Including an intent requirement for the

transactions identified by the proposed

regulations would introduce a subjective

element, which is inconsistent with the

IRS’s need to gather additional information on the identified transactions to

ascertain their potential for tax avoidance. Including an intent requirement in

these regulations would also frustrate the

IRS’s ability to determine which of the

basis adjustment transactions are impermissible tax avoidance transactions and

to effectively and efficiently address the

One commenter recommended requiring reporting only for transactions with

defined indicators of potential tax avoidance or evasion, rather than the involvement of a related or tax-indifferent party,

but did not suggest other indicators or

explain how the current indicators are

insufficient. The Treasury Department and

the IRS have made modifications to the

proposed regulations as described herein

to better target the identification of transactions for which reporting is required.

2. Basis shifts between assets of like

character

One commenter recommended excluding transactions identified as a basis

adjustment transaction of interest in cases

in which (1) basis is shifted between assets

of like character (that is, capital asset to

capital asset or ordinary income asset to

ordinary income asset), (2) basis is shifted

from non-recoverable property to non-recoverable property or the basis adjust-

February 3, 2025

666

tax avoidance. Moreover, the general

transaction of interest reporting requirements under section 6011 do not include

a knowledge component; taxpayers are

required to report the tax consequences of

their transactions identified as transactions

of interest regardless of whether they are

aware of the reporting requirements. As

further described in Parts III.A.4 and III.E

of this Summary of Comments and Explanation of Revisions, it is not appropriate to

incorporate an exception or safe harbor for

business separations or succession-planning transactions into the final regulations

as these transactions are no less likely to

be structured to avoid tax, and thus may

also have the potential for tax avoidance.

Accordingly, these comments are not

adopted in the final regulations.

4. Excluding certain basis-adjustment

transactions

One commenter recommended excluding certain basis-adjustment transactions

that cure inside-outside basis disparities

created by section 734(b) adjustments,

section 704(c) methods, contributions,

distributions, and revaluations. Another

commenter recommended that the final

regulations consider common reasons why

an inside-outside basis disparity might

arise, such as transaction costs required

to be capitalized to outside basis, certain

income exclusions related to foreign corporations owned through a partnership, or

the use of various section 704(c) methods.

This commenter recommended that certain acquisitions of partnership businesses

that may involve or create related-partner relationships, including distributions

of lower-tier partnership interests to an

upper-tier partnership and liquidations

of blocker subsidiaries, be excluded as

transactions of interest. Another commenter requested that the final regulations

exclude partnership-incorporation transactions, including transactions described

in Rev. Rul. 84-111, 1984-2 C.B. 88,

Situation 2 (assets-up incorporation) and

Situation 3 (interests-over incorporation).

A few commenters requested that the final

regulations exclude from the transactions

identified as section 732(b) TOIs and section 734(b) TOIs any basis adjustments

resulting from an actual or deemed distribution in the case of a partnership merger

Bulletin No. 2025–6

or division done for commercial reasons,

such as to allow a partial sale and continuation of certain investments held by a private equity or other investment fund.

In response to comments received on

the proposed regulations, these final regulations adopt several suggestions to limit

the scope of the transactions identified by

the proposed regulations to exclude from

reporting common business transactions

that do not meet large, economic thresholds. However, providing a blanket exclusion for certain transactions that may be

common business transactions under specific circumstances, but may also have the

potential for tax avoidance, would defeat

the purpose of identifying the transactions

as transactions of interest. For example, a

partnership merger or division involving

related parties may be undertaken with the

intent to increase the basis of an asset that

is subsequently disposed of in a recognition transaction or to increase cost recovery deductions. Moreover, one of the purposes of the final regulations is to gather

additional information on how taxpayers

are creating opportunities to shift basis

between related parties using the provisions of subchapter K (for example, information related to how inside-outside basis

disparities are being created). Providing an

exclusion from reporting for transactions

that cure inside-outside disparities created

through certain section 704(c) methods,

contributions, adjustments, distributions

or revaluations would nullify most of

the disclosures required by the final regulations as these are the techniques used

to create opportunities for partnership

related-party basis shifting. For these

reasons, the commenters’ suggestions for

exclusions of certain transactions are not

adopted in the final regulations.

tions and that the final regulations should

add carveouts for transactions of PTPs.

At a minimum, the commenter recommended that the final regulations implement an ownership threshold for related

partners of five percent or more of the

PTP to allow such persons to be identified

by disclosures required to be made to the

U.S. Securities and Exchange Commission. Another commenter recommended

that basis adjustments resulting from an

acquisition of a unit in a PTP, including as

part of any redemption of publicly traded

units by the PTP, should be excluded from

the transactions identified as transactions

of interest.

The Treasury Department and the IRS

agree that due to PTPs having a large

number of PTP unitholders that are not

related partners within the meaning of the

final regulations, and the unlikelihood that

unrelated PTP unitholders would engage

in the transactions identified as transactions of interest in the final regulations,

it is appropriate to exclude basis adjustments involving a transfer of or a distribution with respect to partnership interests in

a PTP, except basis adjustments resulting

from certain material transactions involving partnership interests held by related

partners in a PTP. Accordingly, the final

regulations provide that in the case of a

PTP, a participating partner means a partner of the PTP but only to the extent that

the partner engages in a private transfer (as

described in § 1.7704-1(e)), redemption

and repurchase agreement (as described

in § 1.7704-1(f)), or private placement (as

described in § 1.7704-1(h)) of a partnership interest with a related partner and the

transaction is not otherwise excluded as

a transaction of interest described in the

final regulations.

5. Publicly traded partnerships

B. Cash as property for purposes of

section 734(b) TOIs

One commenter expressed concern

that publicly traded partnerships within

the meaning of section 7704 of the Code

(PTPs) are unable to identify the buyers

and sellers of interests therein, making it

impossible to determine whether a transfer is made between related parties. This

commenter stated that PTPs frequently

engage in transactions that result in section 743(b) adjustments as part of normal

public trading and capital-markets transac-

Bulletin No. 2025–6

One commenter requested that the final

regulations clarify that cash is not included

as “property” for purposes of a section

734(b) TOI and thus positive basis adjustments resulting from a distribution of cash

be excluded from transactions identified

as transactions of interest. Another commenter asked for clarification that cash

distributions in excess of basis that result

in positive basis adjustments under sec-

667

tion 734(b) are identified as transactions

of interest only to the extent that the distributions are made to a tax-indifferent party.

As a general matter, the text of section 734 makes no distinction between

cash and other partnership property. A

cash distribution to a related partner could

be treated as a section 734(b) TOI to the

extent that any basis increases generated

under section 734(b)(1) exceed the gain

recognized under section 731(a)(1) (or

otherwise) with respect to which any tax

imposed under subtitle A of the Code

(subtitle A) is required to be paid by the

related partners. However, the Treasury

Department and the IRS note that if gain

is recognized on a distribution of cash that

results in a basis adjustment under section

734(b)(1)(A) and tax imposed under subtitle A is required to be paid on such gain by

any of the related partners, that portion of

the basis adjustment would not be counted

towards the overall applicable threshold

amount in determining whether disclosure

of a transaction of interest is required.

C. Acquisition and integration

transactions for purposes of section

743(b) TOIs

A few commenters recommended

excluding from a section 743(b) TOI

transactions in which a party purchases

a partnership interest in an arm’s-length

transaction, receives a basis adjustment

under section 743(b), then transfers the

partnership interest to a related person in a

nonrecognition transaction (for example,

a transfer to a corporation under section

351(a) or to a partnership under section

721(a)) that causes a re-computation and

re-allocation of the section 743(b) adjustment for the benefit of the related-party

transferee. Under the proposed regulations, assuming the proposed $5 million

threshold amount was met, such a transaction would be reportable if the nonrecognition transfer to the related transferee

results in a positive basis increase.

The Treasury Department and the IRS

agree that a positive section 743(b) basis

adjustment acquired through an arm’slength transaction (for example, a transaction that would not be a reportable transaction under these final regulations, without

regard to the six-year lookback period) to

which a related transferee succeeds should

February 3, 2025

not be a reportable transaction, except to

the extent of any additional positive basis

adjustment resulting from the nonrecognition transfer. This is because if the

original section 743(b) adjustment was

acquired through an arm’s length transaction that would not be reportable under the

final regulations, a corresponding amount

of gain should have been recognized and

tax imposed under subtitle A should have

been paid by the original transferor. Thus,

a subsequent nonrecognition transfer by

the original transferee that results in the

same section 743(b) adjustment has little

potential for tax abuse. Accordingly, the

final regulations provide that if a partner

receives an interest in a partnership from

a person in a recognition transaction (first

transfer) and the basis of one or more partnership properties is increased under section 743(b)(1) and (c), and subsequently

the partner (transferor) transfers the partnership interest to a person related to the

transferor (transferee) in a nonrecognition

transaction (subsequent transfer), the subsequent transfer is a transaction of interest

only if the transferee’s basis adjustment

under section 743(b)(1) and (c) resulting from the subsequent transfer exceeds

the amount of the transferor’s remaining

basis adjustment that is attributable to the

transferred partnership interest (excess

amount), and the applicable threshold

amount is met. The final regulations further provide that only the excess amount is

counted towards the applicable threshold

amount and that a transferor’s remaining

basis adjustment is equal to the amount

of the transferor’s basis adjustment under

section 743(b)(1) and (c) resulting from

the first transfer as adjusted under section

1016(a)(2) to reflect any recovery of the

basis adjustment or as otherwise adjusted

prior to the subsequent transfer.

D. Transfers between unrelated partners

for purposes of section 743(b) TOIs

Many commenters recommended

excluding transfers between unrelated

parties from a section 743(b) TOI if the

transferee is related to one or more existing partners. Several of these commenters

recommended that the transaction identified by proposed § 1.6011-18(c)(2) should

be limited to transfers between related

transferors and transferees. The Treasury

February 3, 2025

Department and the IRS agree with this

suggestion as transfers between related

parties have a clear potential for tax avoidance whereas transfers between unrelated

parties if the transferee is related to one

or more existing partners may be much

harder to structure to achieve the desired

tax avoidance. Additionally, an unrelated

transferor may not have reason to know

that a transferee is related to one or more

existing partners. Accordingly, the definition of “related partner” in § 1.6011-18(b)

(9) in the final regulations provides that in

the case of a section 743(b) TOI, a related

partner means a transferor and transferee

of a partnership interest that are related to

each other immediately before or immediately after a section 743(b) TOI. The

definition in the final regulations does not

include a transferee that is unrelated to a

transferor but is related to one or more of

the partners in the partnership.

E. Transfers upon death

For purposes of a section 743(b) TOI,

proposed § 1.6011-18(b)(2) would have

defined a nonrecognition transaction as

defined in section 7701(a)(45) — that is,

any disposition of property in a transaction in which gain or loss is not recognized in whole or in part for purposes of

subtitle A — other than a transfer on the

death of a partner.

One commenter requested clarification

that a step up in basis that results from

the transfer of an interest on the death

of a partner is not a transaction of interest. Another commenter requested clarification that the following transactions

are “transfers on the death of a partner”

excluded from the definition of a nonrecognition transaction under the final

regulations: (1) any deemed transfer to

what had been a grantor trust, including

an intentionally defective grantor trust;

and (2) a transfer on the death of a beneficiary of a trust that is a partner. This same

commenter requested clarification that a

“transfer on the death of a partner” is neither a “nonrecognition transaction,” nor

a “recognition transaction” as defined in

the proposed regulations. Section 1.601118(c)(4) of the final regulations clarifies

that transfers on the death of a partner are

not identified as transactions of interest or

as substantially similar transactions. Sec-

668

tion 1.6011-18(b)(13) of the final regulations also provides that the term “transfer

on the death of a partner” means a transfer

of a partnership interest from a partner to

the partner’s estate or a deemed transfer

from a grantor trust owned by the partner

to a trust that becomes a separate entity for

Federal income tax purposes by reason of

the partner’s death.

One commenter recommended excluding distributions of partnership property to

transferees of an interest in a partnership

owned (or deemed owned) by a decedent

at the time of death that occur during the

administration of the decedent’s estate,

or a trust created by the decedent. This

commenter also recommended excluding

transfers of partnership interests owned (or

deemed owned) by a decedent that occur

during the administration of the decedent’s estate or by a trust that was created

by the decedent. Although not specifically

stated in the commenter’s letter, presumably, both of the commenter’s recommendations would not be relevant in cases in

which a section 754 election was made at

the time of the decedent’s death because

there would be no disparity between the

outside basis in the decedent’s partnership

interest and its share of inside basis in the

partnership’s properties. The Treasury

Department and the IRS agree that transfers of partnership interests resulting from

the death of a partner should be excluded

from the transactions identified as transactions of interest and thus these transfers

are not identified as such by the final regulations. However, if a section 754 election is not made for the taxable year that

includes the death of the partner, subsequent transactions that generate positive

basis adjustments, such as distributions

of partnership property to the estate or

transfers of partnership interests to beneficiaries that may resolve an inside-outside

basis disparity created by a step-up to the

basis of the decedent’s partnership interest

upon death, will be included as transactions of interest, provided that the applicable threshold amount is met. The Treasury

Department and the IRS appreciate that a

section 754 election, once made, is irrevocable without seeking permission from

the IRS, and that a section 754 election at

the time of a partner’s death may require

the partnership to maintain a separate set

of calculations of the transferee benefi-

Bulletin No. 2025–6

ciaries’ distributive shares of partnership

items that reflect the section 743(b) adjustment. But making a section 754 election at

the time of death would be the mechanism

by which to avoid the reporting requirements imposed by the regulations (assuming the applicable threshold amount is

met). Providing an exception to reporting

for transactions that result in basis adjustments because a section 754 election was

not made on the death of a partner due to

potential administrative burdens would

result in additional requests for reporting

exceptions in other fact patterns in which

a section 754 election was not made on

an original transaction due to potential

administrative burdens, and a subsequent

nonrecognition transaction results in a

basis adjustment that would otherwise

be reportable. Including such exceptions

in the final regulations would defeat the

purpose of identifying the transactions of

interest, as there may be circumstances in

which the lack of a section 754 election

was part of a strategy to generate more

beneficial results using a transaction identified as a transaction of interest by the

regulations. Thus, these final regulations

do not exclude transactions in which a

basis increase arises because a section 754

election was not made for a transaction

that would have provided a basis adjustment to offset an inside-outside basis disparity. The Treasury Department and the

IRS note that relief under §§ 301.9100-1

through 301.9100-3 may be available for

section 754 elections should a partnership

fail to make the election in the time prescribed by the Code and regulations.

IV. Threshold Amount For Reporting

A. Amount generally

Under proposed § 1.6011-18(c)(3),

a partnership related-party basis adjustment transaction would have included

those transactions in which the total basis

increases from all transactions described

in proposed § 1.6011-18(c)(1) or (2), (d)

(1) or (2) engaged in by the same partner or partnership during the taxable year

(without netting for any basis adjustment

that results in a basis decrease in the

same transaction or another transaction),

reduced by the gain recognized, if any,

on which tax imposed under subtitle A is

Bulletin No. 2025–6

required to be paid by any of the related

parties to the transaction, equal or exceed

$5 million. Accordingly, a transaction

of a partner or partnership described in

proposed § 1.6011-18(c)(1) or (2) that

resulted in a basis increase of less than

$5 million during the taxable year would

have been a transaction of interest under

proposed § 1.6011-18(a) if, in the same

taxable year, the partner or partnership

participated in another transaction or

transactions described in proposed §

1.6011-18(c)(1) or (2) and, in the aggregate, the transactions resulted in a basis

increase that equals or exceeds $5 million, without regard to any basis decrease

resulting from the transactions and after

reducing the resulting aggregate amount

by the gain recognized, if any, on which

tax imposed under subtitle A is required to

be paid by any of the related parties to the

transactions.

Many commenters recommended

increasing the proposed $5 million threshold amount, asserting that the $5 million

threshold was too low, particularly considering the aggregation requirement, and

would catch common business transactions. Several commenters recommended

increasing the proposed $5 million

threshold amount to an amount between

$10 million and $100 million. One commenter recommended making the threshold amount $10 million for transactions

of interest occurring after the applicability

date of these final regulations and $50 million for transactions of interest occurring

before that date.

The Treasury Department and the IRS

have determined that increasing the proposed $5 million threshold amount is

appropriate to reduce the administrative

burden imposed on taxpayers. The purpose of these final regulations is to learn

more about partnership related-party basis

adjustment transactions and the Treasury

Department and the IRS are conscious

of overburdening taxpayers in that pursuit. Accordingly, the final regulations

provide that, in the case of related-party

basis adjustment transactions occurring within the six-year lookback period

described in §1.6011-18(c)(3)(ii), the

applicable threshold amount is $25 million. For related-party basis adjustment

transactions occurring after the six-year

lookback period, the final regulations

669

provide an applicable threshold amount

of $10 million. In each case, the applicable threshold amount is met for a taxable year if the sum of all related-party

basis increases (as determined under Part

IV.B. of this Summary of Comments and

Explanation of Revisions) resulting from

all transactions described in the final regulations of a participant during the taxable

year (without netting for any downward

basis adjustment in the same transaction

or another transaction) exceeds by at least

the applicable threshold amount the gain

recognized from such transactions, if any,

on which tax imposed under subtitle A is

required to be paid by any of the related

partners (or tax-indifferent party) who are

a party to such transactions. If the applicable threshold amount is met for a taxable

year, all transactions of the participant

described in the final regulations for the

taxable year are reportable as transactions

of interest regardless of whether an individual transaction meets the applicable

threshold amount.

B. Calculation of threshold amount

Commenters

also

recommended

changing how the threshold amount is calculated. A few commenters recommended

allowing basis increases to be offset by

basis decreases for purposes of determining whether the threshold amount has

been reached. Another commenter recommended taking basis increases into account

only to the extent that corresponding basis

decreases are borne by related parties. The

same commenter recommended exempting transactions from the proposed regulations for which only a small portion (for

example, 10 percent) of an overall basis

decrease impacts parties related to those

with corresponding basis increases, or vice

versa. One commenter recommended that

if its recommendation to limit reporting to

the year of the transaction of interest is not

adopted, that the threshold amount look to

net taxable income — that is, reporting

should be required only if the tax benefit

reduced taxable income by the threshold

amount. This commenter also suggested

eliminating aggregation of basis increases.

Another commenter recommended using

a threshold amount that is not related to

basis (for example, the book value of distributed property).

February 3, 2025

The Treasury Department and the IRS

agree that the calculation of the applicable

threshold amount for purposes of section

734(b) TOIs should include only related

partners’ shares of basis increases and

not the shares of unrelated parties, who

can negotiate transactions at arm’s length

to protect their interests. The Treasury

Department and the IRS also agree that

the calculation of the applicable threshold

amount for purposes of section 732(b)

TOIs should exclude basis increases that

correspond to basis decreases borne by

unrelated partners (other than tax-indifferent parties) as basis decreases borne

by unrelated partners should be negotiated at arm’s length unless the unrelated

partner is a tax-indifferent party. Accordingly, § 1.6011-18(c)(3)(iii) of the final

regulations provide that in the case of

a section 734(b) TOI, other than a substantially similar transaction described

in § 1.6011-18(d)(1), for determining

whether the applicable threshold amount

is met for a taxable year, a basis increase

is an increase to the adjusted basis of

the partnership’s property under section

734(b)(1) and (c) only to the extent of

each related partner’s share of the basis

increase. Section 1.6011-18(c)(3)(iv) of

the final regulations provides that in the

case of a section 732(b) TOI, other than a

substantially similar transaction described

in § 1.6011-18(d)(1), for determining

whether the applicable threshold amount

is met for a taxable year, a basis increase

is an increase to the basis of property

distributed to one of the related partners

under section 732(b) or (c), but excluding the amount of any basis increase that

corresponds to a decrease to the basis of

property distributed to unrelated partners

(other than tax-indifferent parties) under

section 732(b) and (c) or to unrelated

partners’ (other than tax-indifferent parties’) shares of a corresponding decrease

to the basis of the partnership’s remaining property under section 734(b)(2) and

(c). In the case of a substantially similar

transaction described in § 1.6011-18 (d)

(1), for purposes of determining whether

the applicable threshold amount is met

for a taxable year, a basis increase is an

increase to the basis of property distributed to one of the partners under section

732(b) or (c) only to the extent of a corresponding decrease to the basis of property

February 3, 2025

distributed to a tax-indifferent party under

section 732(b) and (c) or to one or more

tax-indifferent party’s shares of a corresponding decrease to the basis of the partnership’s remaining property under section 734(b)(2) and (c). For purposes of all

of these rules, a partner’s share of a basis

decrease is determined immediately after

the distribution under rules similar to the

rules of § 1.197-2(h)(12)(iv)(D).

The Treasury Department and the IRS

do not agree, however, that additional

changes to the calculation of the applicable threshold amount, such as eliminating

aggregation, calculating the applicable

threshold amount based on increases to

taxable income, or using an economic

threshold that is based on book amounts,

are appropriate in light of the modifications made. If aggregation were eliminated from the calculation of the applicable threshold amount, taxpayers would

be incentivized to separate transactions

described in the final regulations into multiple transactions that result in positive

basis adjustments in an amount below

the applicable threshold amount to avoid

reporting obligations. Incentivizing such

behavior would defeat the purpose of the

final regulations, which is to gather information on partnership related-party basis

adjustment transactions. Additionally, calculating the applicable threshold amount

based on taxable income or book amounts

would introduce unnecessary complexity

for both taxpayers and the IRS in identifying the transactions described in the final

regulations. The calculation of the applicable threshold amount in the final regulations represents an appropriate methodology for quantifying the magnitude of

partnership related-party basis adjustment

transactions a taxpayer engages in for a

taxable year. As described in Part IV.A of

this Summary of Comments and Explanation of Revisions, the increases to the

threshold amount made by these final regulations should also address concerns that

the applicable threshold amount is overly

inclusive.

Finally, one commenter requested

clarification that substantially similar

transactions are subject to the threshold

amount. The Treasury Department and

the IRS clarify that a transaction cannot

be a substantially similar transaction if

the applicable threshold amount is not

670

met. As described in part VI of this Summary of Comments and Explanation of

Revisions, transactions would be “substantially similar” transactions if they are

(1) expected to obtain the same or similar

types of tax consequences as the transactions described in the final regulations, (2)

factually similar or based on the same or

similar tax strategy, and (3) the applicable

threshold amount is met.

V. Relatedness Standard

Proposed § 1.6011-18(b)(8) would

have defined “related” as having a relationship described in section 267(b) (without regard to section 267(c)(3)) or section

707(b)(1). Proposed § 1.6011-18(b)(9)

would have defined “related partners” as

partners of a partnership that are related in

the following manner — (i) in a transaction described in proposed § 1.6011-18(c)

(1), the partnership has two or more direct

or indirect partners that are related to each

other within the meaning of proposed §

1.6011-18(b)(8), or (ii) in a transaction

described in proposed § 1.6011-18(c)(2),

the transferor of a partnership interest is

related to the transferee, or the transferee

is related to one or more of the partners

in the partnership, within the meaning

of proposed § 1.6011-18(b)(8). Under

the proposed regulations, this relatedness requirement would have been met

if the requisite relatedness exists either

immediately before or immediately after

a partnership related-party basis adjustment transaction described in proposed §

1.6011-18(c)(1) or (2).

Several commenters recommended

changes to the relatedness requirement,

stating that it was overbroad and difficult to comply with as partnerships and

partners may not be able to identify their

related parties. One commenter recommended importing concepts found in

section 1563(a)(2) of the Code (related

to brother-sister controlled groups of

corporations) that would limit the definition of related partnerships by taking into

account common ownership of capital or

profits interests in the partnerships only to

the extent that such ownership is identical

with respect to each partnership.

In the case of transactions of interest

involving section 734(b) or section 732(b)

or (d), one commenter recommended

Bulletin No. 2025–6

requiring related partners to own 80 percent or more of the capital or profits interests of the partnership. Similarly, another

commenter recommended that for all purposes of the final regulations, reporting

should be required only if related parties

own 80 percent or more of the capital or

profits of a participating partnership. This

commenter also recommended that the

standard for relatedness be modified by

substituting “80 percent” for “50 percent”

in the relevant relationships defined within

sections 267(b) or section 707(b)(1).

The Treasury Department and the IRS

appreciate that the standard of relatedness

used in the proposed regulations, combined with the scope of the transactions

identified as transactions of interest, the

proposed $5 million threshold amount,

and the proposed definition of participation could result in administrative burdens

on partnerships and their partners. The

final regulations address these burdens by

limiting the scope of the transactions identified, increasing the applicable threshold

amounts, and limiting the application of

the subsequent realization of tax benefit

rule as described in Part VII.A. of this

Summary of Comments and Explanation

of Revisions. For example, in response to

comments requesting that the standard of

relatedness be narrowed, in the case of a

section 734(b), 732(b) or 732(d) TOI, the

final regulations provide that only directly

related partners (and not also indirectly

related partners) are considered in determining whether partners are related within

the meaning of § 1.6011-18(b)(8) of the

final regulation.

The final regulations do not adopt

the additional changes to the standard of

relatedness recommended by commenters

because the Treasury Department and the

IRS are concerned that counting only identical ownership as between related partnerships, or requiring related partners to own

80 percent or more of the capital or profits

interests in a partnership, would more easily permit partnership structures with only

marginally different ownership, including

through the use of accommodation parties,

to avoid such higher ownership thresholds

without substantially affecting the partners’ economics. Likewise, the Treasury

Department and the IRS are concerned

that increasing the relatedness standard

from 50 percent to 80 percent could allow

Bulletin No. 2025–6

taxpayers to structure their affairs to stay

below an 80-percent-relatedness standard,

while simultaneously engaging in abusive

partnership related-party basis adjustment

transactions. Adding an ownership threshold or increasing the relatedness standard

would frustrate the purpose of identifying

the transactions described in the proposed

regulations as transactions of interest.

Accordingly, the commenters’ recommendations are not adopted in the final regulations.

A commenter recommended excluding transactions between family members from those defined as transactions

of interest and focusing instead on transactions involving controlled corporations described in section 267(f). The

commenter noted that if relatedness is

determined immediately before or after

a transaction, parties undergoing divorce

may be subject to these rules even though

they have competing interests and will not

be related after the divorce. Another commenter recommended excluding brothers

and sisters from a person’s family for

purposes of determining relatedness, stating that, in the commenter’s experience,

siblings often have a contentious business relationship and are less likely to

engage in transactions that confer large,

gratuitous economic or tax benefits to one

another. The Treasury Department and

the IRS do not agree that familial relationships, including sibling relationships,

should be excluded from the definition of

relatedness. Family members, including

siblings, often work in concert in ways

that arm’s-length parties do not. For those

reasons, Congress included these familial

relationships as part of the limitation rules

in sections 267 and 707(b). Additionally,

section 1041 of the Code is intended to

address transfers of property between

spouses incident to divorce. For these reasons, the final regulations retain familial

relationships, including sibling relationships, in the definition of relatedness.

VI. Substantially Similar Transactions

Section 1.6011-4(b)(6) defines a

“transaction of interest” as a transaction

that is the same as or substantially similar

to one of the types of transactions that the

IRS has identified by notice, regulation,

or other form of published guidance as

671

a transaction of interest. For purposes of

proposed § 1.6011-18, transactions would

be “substantially similar” transactions if

the transactions are substantially similar

within the meaning of § 1.6011-4(c)(4) —

that is, if they are expected to obtain the

same or similar types of tax consequences

and are either factually similar or based on

the same or similar tax strategy. Proposed

§ 1.6011-18(a) would have provided that

substantially similar transactions include,

but are not limited to, the transactions

described in proposed § 1.6011-18(d).

Some commenters recommended clarifying or narrowing the definition of “substantially similar” transactions generally.

Several commenters noted that the broad

definition of “substantially similar transactions” in § 1.6011-4 increases uncertainty and compliance costs. Suggestions

to amend § 1.6011-4, including that provision’s definition of a “substantially similar” transaction, are outside the scope of

these final regulations. As a result, the

commenters’ suggestions are not adopted

in the final regulations.

A. Tax-indifferent parties

Under proposed § 1.6011-18(d)(1), a

transaction would have been substantially

similar to a transaction described in proposed § 1.6011-18(c) if the transaction is a

basis adjustment transaction described in

proposed § 1.6011-18(c)(1) or (2), except

that it does not involve related partners and

one or more partners of the partnership is

a tax-indifferent party. Under proposed §

1.6011-18(b)(11), a tax-indifferent party

would have meant a person that is either

not liable for Federal income tax because

of its tax-exempt or, in certain cases, foreign status, or to which gain from a transaction described in proposed § 1.601118(c) would not result in Federal income

tax liability for the person’s taxable year

within which such gain is recognized (for

example, because the taxpayer has a net

operating loss carryforward or capital loss

carryforward).

Two commenters recommended eliminating transactions involving tax-indifferent parties from those identified as transactions of interest. Many commenters

noted that partners and partnerships may

be unaware that a person engaging in a

transaction identified by the proposed reg-

February 3, 2025

ulations is a tax-indifferent party. Some

commenters requested clarification to the

definition of tax-indifferent party, such as

whether it includes direct or indirect partners that are exempt from Federal income

tax under section 115 of the Code (relating

to the income of State, territorial, or local

governments), entities treated as partnerships or S corporations for Federal tax

purposes, or a person that, due to tax attributes or for other reasons, is subject to tax

on only part of its income. One commenter

requested confirmation that the definition

of a tax-indifferent party does not include

a party with a capital loss carryover. The

commenter raised that a capital loss carryover may be unrelated to a partner’s

partnership interest and unknown by other

partners, particularly if the partner is unrelated.

One commenter recommended limiting the rule to situations in which the

tax-indifferent party knows or has reason to know of the tax benefits arising

in connection with its participation in a

basis-adjustment transaction and that the

other partners that are party to the transaction know of the partner’s tax-indifferent

status. One commenter recommended an

exception for taxpayers who do not have

knowledge or reason to know that its transaction is reportable because a person that

is a party to the transaction is tax-indifferent. Another commenter recommended

modifying the tax-indifferent party rule to

apply only to situations in which the taxpayer knowingly participates in the transaction to which the tax-indifferent party

facilitates a basis step-up.

Eliminating the tax-indifferent party

rule would frustrate the purpose of identifying substantially similar transactions

to the identified transactions of interest

that use tax-indifferent parties instead of

related parties to achieve the same economic or tax results. Accordingly, the

Treasury Department and the IRS decline

to eliminate the tax-indifferent party rule

entirely in the final regulations. However,

in response to these comments, the Treasury Department and the IRS have determined that certain changes to the scope of

transactions of interest involving tax-indifferent parties are appropriate.

Accordingly, the final regulations

include a knowledge element in the definition of a tax-indifferent party. Section

February 3, 2025

1.6011-18(b)(12) of the final regulations

provides that a tax-indifferent party means

a person that is either not liable for Federal income tax by reason of its tax-exempt or, in certain cases, foreign status,

or to which any gain, or portion of any

gain, that would have resulted from a section 732(b) TOI or a section 734(b) TOI

if the property subject to a basis decrease

in such transaction were sold immediately

after such transaction, would not result in

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

would have been recognized, and whose

status as a tax-indifferent party is known

or should be known to any other person

that participates in the transaction or to a

partner in a partnership that participates

in such a transaction. Thus, a tax-indifferent party would include a person that is

partially taxable, for example, due to tax

attributes, to the extent that the person’s

status as a tax-indifferent party is known

or should be known by any other person

participating in the transaction or to a

partner in a partnership that participates

in such a transaction. Because partnerships or S corporations are generally not

liable for tax, and because the tax status

of their partners or shareholders could be

diverse, the final regulations also provide

that partnerships or S corporations are not

tax-indifferent parties except in cases in

which a principal purpose of the use of the

partnership or S corporation is to avoid

tax-indifferent party status.

Additionally, the final regulations limit

the scope of a substantially similar transaction with a tax-indifferent party under §

1.6011-18(d)(1) by limiting the calculation of the applicable threshold amount to

basis increases that correspond to a basis

decrease to the tax-indifferent party for

sections 732 and 734 TOIs. See Part IV.B.

of this Summary of Comments and Explanation of Revisions. These modifications

are intended to address concerns that the

tax-indifferent party rules in the proposed

regulations were overbroad.

The final regulations also clarify that

a transaction with a tax-indifferent party

includes a transaction in which the tax-indifferent party facilities the increase in the

basis of partnership property in a section

732 TOI by having a share of a corresponding decrease to the basis of partnership property.

672

B. Recognition transactions

Proposed § 1.6011-18(d)(2) would

have defined as a substantially similar

transaction a transaction in which a partner transfers the partner’s partnership

interest in a recognition transaction to a

related transferee or to a person related to

one or more existing partners, and the proposed $5 million threshold amount was

met. Proposed § 1.6011-18(b)(6) would

have defined a “recognition transaction”

as a transaction other than a nonrecognition transaction.

One commenter requested clarification

that proposed § 1.6011-18(d)(2) applies

only to transfers between related parties,

meaning the transferor and transferee

must be related. The Treasury Department

and the IRS agree with this comment and

have made clarifying changes to confirm

that the rule in § 1.6011-18(d)(2) does not

apply to transfers of partnership interests

between persons that are not related.

VII. Participation in a Transaction

of Interest Identified by the Proposed

Regulations

A. Subsequent realization of tax benefit

rule

Under proposed § 1.6011-18(e)(2)-(4),

a participating partnership, participating

partner, or related subsequent transferee

would have participated in a transaction

of interest in any taxable year in which

it participates in a transaction described

in proposed § 1.6011-18(c). Additionally, under proposed § 1.6011-18(e)(5),

a participating partnership, participating

partner, or related subsequent transferee

would have participated in a transaction of

interest in any taxable year in which its tax

return reflected the tax consequences of a

basis increase resulting from a transaction described in proposed § 1.6011-18(c)

(subsequent realization of tax benefit rule).

Therefore, under the proposed regulations,

as a result of the subsequent realization of

tax benefit rule, a transaction described

in proposed § 1.6011-18(c) that occurred

many years ago could require reporting

if a taxpayer’s tax return in an open tax

year reflected the tax consequences (such

as cost-recovery deductions) arising from

the transaction of interest.

Bulletin No. 2025–6

Several commenters recommended

eliminating the retroactive effect of the

subsequent realization of tax benefit rule.

These commenters stated that complying with the rule would be burdensome

given that it could require taxpayers and

their advisors to reconstruct transactions

and their resulting tax consequences from

many years ago. Commenters asserted

that, in many cases, taxpayers and their

advisors will not have sufficient information to comply with the rule.

Several commenters recommended that

the proposed regulations apply prospectively to transactions that occur in taxable

years beginning on or after the date the

final regulations are adopted, whereas one

commenter recommended applying the

proposed regulations solely to transactions effected on or after January 1, 2023.

One commenter recommended applying

the subsequent realization of tax benefit rule only to partnership related-party

basis adjustment transactions that occur

within partnership tax years that remain

open under the period of limitations set

forth in section 6235 of the Code. Section 6235 provides rules on the period of

limitations for making adjustments with

respect to partnerships subject to the Centralized Partnership Audit Regime under

the Bipartisan Budget Act of 2015 (BBA

partnerships). Under section 6235(a)(1),

the time for the IRS to make an adjustment for a taxable year of a BBA partnership generally is the later of the date

which is three years after the latest of (1)

the date on which the partnership return

for the taxable year was filed, (2) the

return due date for the taxable year, or (3)

the date on which the partnership filed an

administrative adjustment request under

section 6227 of the Code with respect to

the taxable year. In the case of a BBA

partnership that makes a substantial omission of gross income within the meaning

of section 6501(e)(1), section 6235(c)(2)

provides that the period of limitations on

making adjustments is six years instead of

three years.

The Treasury Department and the IRS

do not agree with eliminating all reporting that would occur under the subsequent

realization of tax benefit rule as this would

defeat the purpose of providing the IRS

with information regarding transactions

with tax consequences occurring over

Bulletin No. 2025–6

more than one taxable year. However, the

Treasury Department and the IRS agree

that it is appropriate to limit the retroactive information effect of the subsequent

realization of tax benefit rule because of

administrative concerns with compliance

for transactions that would meet the elements of § 1.6011-18(c) and (d) except

that they occurred many years ago.

In determining the appropriate limitation for the subsequent realization of tax

benefit rule, limiting the look back period

to the prior six years as recommended by

one commenter allows the IRS to preserve

its ability to assess tax in cases in which

the statute of limitations for assessment

of tax is six years pursuant to section

6501(e) or section 6235(c)(2). In addition,

a six-year lookback period aligns with

the requirement under § 301.6112-1(b)

(2) that material advisors of transactions

of interests maintain lists of advisees, but

not if the person entered into the transaction more than six years from the date the

transaction was identified as a transaction of interest under published guidance.

Accordingly, the final regulations adopt

a six-year lookback period for required

disclosures. Under the final regulations

at § 1.6011-18(f)(2), for a taxable year

described in § 1.6011-4(e)(2)(i), a participant must provide the information

described in the final regulations only if

the transaction of interest occurred within

the six-year lookback period. Section

1.6011-18(b)(11) of the final regulations

provides that the six-year lookback period

means the seventy-two months immediately preceding the first month of the

taxpayer’s most recent taxable year that

began before January 14, 2025. The final

regulations include examples demonstrating the six-year lookback period rule.

B. Limiting the definition of participation

Several commenters recommended

requiring reporting only in the taxable

year the transaction of interest occurs

and eliminating the subsequent realization of tax benefit rule. These commenters asserted that reporting only in the

year in which the transaction of interest

first arises would reduce compliance burdens and costs for taxpayers and limit the

potential for missed reporting. One commenter suggested adopting a one-time

673

disclosure mechanism like that adopted in

Form 1065, Schedule B, questions 11 and

12 for the “drop and swap” or “swap and

drop” transactions to which section 1031

of the Code applies. Another commenter

recommended requiring reporting only at

the partnership level to avoid duplicative

reporting. Reporting by all participants in

any taxable year in which the participant’s

tax return reflects the tax consequences

of a basis increase resulting from a transaction of interest is the most appropriate

for tax compliance and administration.

Accordingly, the commenters’ recommendations are not adopted in the final regulations.

Special Analyses

I. Paperwork Reduction Act

The collection of information contained

in these final regulations is reflected in the

collection of information for Form 8886

and Form 8918, Material Advisor Disclosure Statement, that have been reviewed

and approved by the Office of Management and Budget (OMB) in accordance

with the Paperwork Reduction Act (44

U.S.C. 3507(c)) under control numbers

1545-1800 and 1545-0865.

To the extent there is a change in burden as a result of these final regulations,

the change in burden will be reflected

in the updated burden estimates for the

Forms 8886 and 8918. The requirement to

maintain records to substantiate information on Forms 8886 and 8918 is already

contained in the burden associated with

the control number for the forms and

remains unchanged.

An agency may not conduct or sponsor,

and a person is not required to respond

to, a collection of information unless the

collection of information displays a valid

OMB control number.

II. Regulatory Flexibility Act

The Regulatory Flexibility Act (RFA)

(5 U.S.C. chapter 6) requires agencies to

“prepare and make available for public

comment an initial regulatory flexibility analysis,” which will “describe the

impact of the rule on small entities.” Section 605(b) of the RFA allows an agency

to certify a rule if the rulemaking is not

February 3, 2025

expected to have a significant economic

impact on a substantial number of small

entities.

The Secretary of the Treasury hereby

certifies that these final regulations will

not have a significant economic impact

on a substantial number of small entities

pursuant to the RFA. This certification is

based on IRS data that estimates the percentage of partnerships that would have

been required to file a disclosure statement under the proposed regulations and

those that may be required to file a disclosure statement under the final regulations.

The IRS’s Research, Applied Analytics, and Statistics division (RAAS) provided data that indicated the percentage of

partnerships with gross receipts or sales of

$25 million or less that might have been

subject to the disclosure obligations under

the proposed regulations because of a

basis adjustment under section 743(b) of

more than $5 million during the taxable

year. In addition, RAAS provided data

that indicated the percentage of partnerships with gross receipts or sales of $25

million or more that might have been subject to the disclosure obligations under

the proposed regulations because of a

basis adjustment under section 743(b) of

more than $5 million during the taxable

year. The data suggested that of all partnerships with related parties and a basis

adjustment under section 743(b) of more

than $5 million during the taxable year,

approximately two-thirds of the partnerships would have gross receipts or sales

of $25 million or less and approximately

one-third would have gross receipts or

sales of $25 million or more. The Treasury

Department and the IRS determined that

the data did not indicate that the proposed

regulations would have a significant economic impact on a substantial number of

small entities because not all partnerships

with gross receipts or sales of $25 million

or less are considered small businesses,3

and the data did not provide information

on whether the partnerships with gross

receipts or sale of $25 million or less were

part of larger enterprises.

As discussed in Part II of the Summary

of Comments and Explanation of Revisions, several commenters stated that the

3

scope of the proposed regulations would

be overbroad and the number of entities

that would be subject to disclosure was

underestimated. In addition, commenters

asserted that taxpayers would be subject

to substantial costs for complying with

the proposed regulations because compliance required reviewing transactions from

prior taxable years to determine whether

a continuing tax benefit was attributable

to a transaction identified as a transaction

of interest under the proposed regulations.

These comments are addressed in Parts II

and VII of the Summary of Comments and

Explanation of Revisions.

One commenter asserted that the Treasury Department and the IRS underestimated the likely cost of complying with

the proposed regulations. Specifically, the

commenter asserted that the likely wage

of tax preparers and costs of due diligence,

as well as the number of parties affected

by each transaction of interest were underestimated.

As indicated in the Summary of Comments and Explanation of Revisions, the

final regulations include changes that

should significantly limit the total number of entities and more specifically, small

businesses, subject to the disclosure obligations. Most significantly, the applicable threshold amount is increased from

$5 million to $10 million; the period for

reporting under § 1.6011-4(e)(2)(i) is limited to a six-year lookback period and the

applicable threshold amount for the sixyear lookback period is $25 million; in the

case of a section 734(b) TOI, the applicable threshold amount is determined by

generally only taking into account only

the amount of the basis increase shared

by related partners; in the case of a section 732(b) TOI, the applicable threshold

amount is determined by generally only

taking into account only the amount of the

basis increase that corresponds to a basis

decrease shared by the related partners.

In addition, more recent data from the

IRS indicates that, in the case of partnerships with gross assets of less than $25

million that reported basis adjustments

under section 734(b) or section 743(b) for

the taxable year, the average basis adjustment was less than the applicable threshold

amount of $10 million or more in the final

regulations. Thus, the Treasury Department

and the IRS anticipate that many partnerships with gross assets of less than $25

million should not be subject to the disclosure obligations under the final regulations.

Further, the data indicates that partnerships

with gross assets of more than $25 million

that reported basis adjustments under section 734(b) or section 743(b) for the taxable year that met the applicable threshold

amount of $10 million or more in the final

regulations represent less than one percent

of all partnerships that filed tax returns for

the taxable year. Accordingly, as a result of

the changes made to the final regulations in

response to comments received on the proposed regulations, the disclosure obligations in the final regulations should affect a

low percentage of partnerships and most of

those partnerships will be partnerships with

less than $25 million of gross assets.

The final regulations should not have a

significant economic impact on small entities subject to the reporting requirements

of the final regulations because the final

regulations merely implement sections

6011, 6111 and 6112 and § 1.6011-4 by

specifying the manner in which and the

time at which a transaction identified as

a transaction of interest in the final regulations must be reported. Accordingly,

because the final regulations will be limited in scope to time and manner of information reporting, their economic impact

is expected to be minimal. The Treasury

Department and the IRS expect that the

reporting burden is low because the information sought is necessary for regular

annual return preparation and ordinary

recordkeeping. The estimated burden for

any taxpayer required to file Form 8886

is approximately 10 hours, 16 minutes for

recordkeeping, 4 hours, 50 minutes for

learning about the law or the form, and 6

hours, 25 minutes for preparing, copying,

assembling, and sending the form to the

IRS.

RAAS estimated that the appropriate

wage rate for complying with the proposed

regulations is $102.00 (2022 dollars) per

hour. Thus, it was estimated that persons

required to comply with the proposed regulations would have incurred costs totaling

See, 13 CFR § 121.201.

February 3, 2025

674

Bulletin No. 2025–6

approximately $2,194.70 per filing. One

commenter indicated that this per hour

dollar amount is too small and that a better

estimate is approximately $177.29 per hour

or approximately $3,814.69 per filing (subject to the taxpayer potentially seeking specialists with a higher hourly fee to comply

with the proposed regulations). Either of

these amounts is small in comparison to an

aggregate basis increase of $10 million or

more as the result of a transaction identified

as a transaction of interest under the final

regulations. Thus, the relatively small cost

to comply with the final regulations will

not pose any significant economic impact

to any small entities that would be subject

to the final regulations.

For the reasons stated, a regulatory

flexibility analysis under the RFA is not

required. Pursuant to section 7805(f) of

the Code, the proposed rule preceding this

rulemaking was submitted to the Chief

Counsel for the Office of Advocacy of the

Small Business Administration for comment on its impact on small business, and

no comments were received.

III. Unfunded Mandates Reform Act

Section 202 of the Unfunded Mandates Reform Act of 1995 requires that

agencies assess anticipated costs and

benefits and take certain other actions

before issuing a final rule that includes

any Federal mandate that may result in

expenditures in any one year by a State,

local, or Tribal government, in the aggregate, or by the private sector, of $100

million in 1995 dollars, updated annually

for inflation. This rule does not include

any Federal mandate that may result in

expenditures by State, local, or Tribal

governments, or by the private sector in

excess of that threshold.

IV. Executive Order 13132: Federalism

Executive Order 13132 (Federalism)

prohibits an agency from publishing any

rule that has federalism implications if

the rule either imposes substantial, direct

compliance costs on State and local governments, and is not required by statute,

or preempts state law, unless the agency

meets the consultation and funding

requirements of section 6 of the Executive

order. These final regulations do not have

Bulletin No. 2025–6

federalism implications and do not impose

substantial direct compliance costs on

State and local governments or preempt

state law within the meaning of the Executive order.

V. Regulatory Planning and Review

Pursuant to the Memorandum of

Agreement, Review of Treasury Regulations under Executive Order 12866 (June

9, 2023), tax regulatory actions issued by

the IRS are not subject to the requirements

of section 6 of Executive Order 12866, as

amended. Therefore, a regulatory impact

assessment is not required.

VI. Congressional Review Act

Pursuant to the Congressional Review

Act (5 U.S.C. 801 et seq.), the Office of

Information and Regulatory Affairs has

designated this rule as not a “major rule,”

as defined by 5 U.S.C. 804(2).

Statement of Availability of IRS

Documents

Guidance cited in this preamble is published in the Internal Revenue Bulletin

and is available from the Superintendent

of Documents, U.S. Government Publishing Office, Washington, DC 20402, or by

visiting the IRS website at https://www.

irs.gov.

Drafting Information

The authors of these regulations are

Elizabeth Zanet and Cameron Williamson, Office of the Associate Chief Counsel (Passthroughs and Special Industries).

However, other personnel from the Treasury Department and the IRS participated

in their development.

List of Subjects in 26 CFR Part 1

Income taxes, Reporting and recordkeeping requirements.

Proposed Amendments to the

Regulations

Accordingly, the Treasury Department

and the IRS propose to amend 26 CFR

part 1 as follows:

675

PART 1—INCOME TAXES

Paragraph 1. The authority citation

for part 1 is amended by adding an entry

for § 1.6011-18 in numerical order to read

in part as follows:

Authority: 26 U.S.C. 7805 * * *

*****

Section 1.6011-18 also issued under 26

U.S.C. 6001 and 26 U.S.C. 6011.

*****

Par. 2. Section 1.6011-18 is added to

read as follows:

§1.6011-18 Certain partnership

related-party basis adjustment

transactions as transactions of interest.

(a) Identification as transaction of

interest. Transactions that are the same as

or substantially similar (within the meaning of § 1.6011-4(c)(4)) to the transactions

described in paragraph (c) of this section

are identified as transactions of interest

for purposes of § 1.6011-4(b)(6). Transactions that are substantially similar (within

the meaning of § 1.6011-4(c)(4)) to the

transactions described in paragraph (c) of

this section include, but are not limited to,

transactions described in paragraph (d) of

this section.

(b) Definitions. The following definitions apply for purposes of this section:

(1) Code means the Internal Revenue

Code.

(2) Nonrecognition transaction means

a nonrecognition transaction within the

meaning of section 7701(a)(45) of the

Code.

(3) Participating partner means—

(i) Except as provided in paragraph

(b)(3)(ii), (iii), or (iv) of this section, any

partner that directly receives a distribution

of property from, or an interest in, a participating partnership, or directly transfers

an interest in a participating partnership,

in a transaction described in paragraph (c)

or (d) of this section, including a person

that becomes or ceases to be a partner as a

result of such transaction.

(ii) In the case of a participating partnership interest held by an entity that is

disregarded as separate from its owner

within the meaning of § 301.7701-2(c)(2)

(i) of this chapter, participating partner

means the owner of the disregarded entity

for Federal income tax purposes.

February 3, 2025

(iii) In the case of a participating partnership interest held by a trust for which

the grantor or another person is treated as

the owner of the trust that holds the participating partnership interest as provided

in section 671 of the Code, participating

partner means the grantor or other person

designated under sections 671 through 679

of the Code as the owner of the trust that

holds the participating partnership interest.

(iv) In the case of a publicly traded

partnership within the meaning of section 7704 of the Code, participating partner means a partner of the publicly traded

partnership but only to the extent that the

partner engages in a private transfer (as

described in § 1.7704-1(e)), redemption

or repurchase agreement (as described in

§ 1.7704-1(f)), or private placement (as

described in § 1.7704-1(h)) of a partnership interest with a related partner and the

transaction is not otherwise excluded as a

transaction described in paragraph (c) or

(d) of this section.

(4) Participating partnership means

any partnership—

(i) That makes a distribution of property to a participating partner in a transaction described in paragraph (c)(1) or (d)

(1) of this section, or

(ii) A partnership interest in which is

transferred by a participating partner in a

transaction described in paragraph (c)(2)

or (d)(2) of this section.

(5) Participating partnership interest

means any partnership interest in a participating partnership.

(6) Recognition transaction means a

transaction other than a nonrecognition

transaction within the meaning of paragraph (b)(2) of this section.

(7) Recoverable property means property of a character subject to an allowance

for depreciation, amortization, or depletion under subtitle A of the Code (subtitle

A).

(8) Related means having a relationship described in section 267(b) of the

Code (without regard to section 267(c)(3))

or section 707(b)(1) of the Code.

(9) Related partners means:

(i) In the case of a transaction described

in paragraph (c)(1) of this section, two or

more direct partners of a partnership that

are related immediately before or immediately after a transaction described in paragraph (c)(1) of this section.

February 3, 2025

(ii) In the case of a transaction

described in paragraph (c)(2) or (d)(2) of

this section, a transferor and transferee of

a partnership interest that are related to

each other immediately before or immediately after a transaction described in paragraph (c)(2) of this section.

(10) Related subsequent transferee

means any person that is related to a participating partner and directly received

in a nonrecognition transaction a transfer

(including a distribution) of property that

was subject to an increase in basis from a

transaction described in paragraph (c) or

(d) of this section.

(11) Six-year lookback period means

the seventy-two months immediately preceding the first month of the taxpayer’s

most recent taxable year that began before

January 14, 2025.

(12) Tax-indifferent party means a

person that is either not liable for Federal income tax by reason of the person’s

tax-exempt or, in certain cases, foreign

status, or to which any gain, or portion of

any gain, that would have resulted from a

transaction described in paragraph (d)(1)

of this section if the property subject to

a basis decrease in such transaction were

sold immediately after such transaction

would not result in Federal income tax liability for the person’s taxable year within

which such gain would have been recognized, and whose status as a tax-indifferent party is known or should be known

to any other person that participates in a

transaction described in paragraph (d)(1)

of this section or to a partner in a partnership that participates in such a transaction.

A tax-indifferent party does not include a

partnership or S corporation except in a

case in which a principal purpose of the

use of the partnership or S corporation is

to avoid tax-indifferent party status.

(13) Transfer on the death of a partner means a transfer of a partnership

interest from a partner to the partner’s

estate or a deemed transfer from a grantor

trust owned by the partner to a trust that

becomes a separate entity for Federal

income tax purposes by reason of the partner’s death.

(c) Transaction description. A transaction is described in this paragraph (c)

if the factual elements of the transaction

described in paragraph (c)(1)(i) through

(iii) or (c)(2) of this section are met.

676

(1) Distributions by a partnership. A

partnership with two or more related partners engages in any of the transactions

described in paragraphs (c)(1)(i) through

(iii) of this section as follows:

(i) The partnership distributes property

to one of the related partners in a current

or liquidating distribution, the partnership

increases the basis of one or more of its

remaining properties under section 734(b)

and (c) of the Code, and the applicable

threshold described in paragraph (c)(3) of

this section is met.

(ii) The partnership distributes property

to one of the related partners in liquidation

of that person’s partnership interest (or in

complete liquidation of the partnership),

the basis of one or more of those distributed properties is increased under section

732(b) and (c) of the Code, and the applicable threshold described in paragraph (c)

(3) of this section is met.

(iii) The partnership distributes property to one of the related partners, the basis

of one or more of those distributed properties is increased under section 732(d) of

the Code, the distributee acquired all or a

part of its interest in the partnership in a

transaction that would have been a transaction described in paragraph (c)(2) of this

section if the partnership had a section 754

election in effect for the year of transfer,

and the applicable threshold described in

paragraph (c)(3) of this section is met.

(2) Transfers of a partnership interest—(i) In general. Except as otherwise

provided in paragraph (c)(2)(ii) or (c)(4)

of this section, a partner transfers all or a

portion of a partnership interest to a related

partner in a nonrecognition transaction,

the basis of one or more partnership properties is increased under section 743(b)

(1) and (c) of the Code, and the applicable

threshold described in paragraph (c)(3) of

this section is met.

(ii) Subsequent nonrecognition transfers—(A) In general. If a partner receives

an interest in a partnership from a person

in a recognition transaction (first transfer) and the basis of one or more partnership properties is increased under section

743(b)(1) and (c) of the Code, and subsequently the partner (transferor) transfers the partnership interest to a person

related to the transferor (transferee) in a

transaction described in paragraph (c)(2)

(i) of this section (subsequent transfer),

Bulletin No. 2025–6

the subsequent transfer is a transaction

described in paragraph (c)(2)(i) of this

section only to the extent, if any, that the

transferee’s basis adjustment under section 743(b)(1) and (c) resulting from the

subsequent transfer exceeds the amount

of the transferor’s remaining basis adjustment described in paragraph (c)(2)(ii)(B)

of this section that is attributable to the

transferred partnership interest (excess

amount), and the applicable threshold

described in paragraph (c)(3) of this section is met. Only the excess amount is

counted towards the applicable threshold

described in paragraph (c)(3) of this section.

(B) Transferor’s remaining basis

adjustment. A transferor’s remaining

basis adjustment is equal to the amount

of the transferor’s basis adjustment under

section 743(b)(1) and (c) resulting from

the first transfer as adjusted under section 1016(a)(2) of the Code to reflect the

recovery of the basis adjustment or as otherwise adjusted prior to the subsequent

transfer.

(3) Applicable threshold—(i) In general. Except as otherwise provided in

paragraph (c)(3)(ii) of this section, for

determining whether a transaction is

described in paragraph (c)(1) or (2), (d)(1)

or (2) of this section, the applicable threshold is met for a taxable year if the sum of

all basis increases resulting from all such

transactions of a partnership or partner

during the taxable year (without netting

for any basis adjustment that results in a

basis decrease in the same transaction or

another transaction) exceeds by at least

$10 million the gain recognized from such

transactions during the same taxable year,

if any, on which tax imposed under subtitle A is required to be paid by any of the

related partners (or tax-indifferent party,

in the case of a transaction described in

paragraph (d)(1) of this section) who are

a party to such transactions.

(ii) Six-year lookback period threshold.

In the case of a transaction described in (c)

or (d) of this section that occurred within

the six-year lookback period, paragraph

(c)(3)(i) applies by substituting “$25 million” for “$10 million” for determining

whether the applicable threshold is met

for a taxable year.

(iii) Basis increase under section

734(b) and (c) only for shares of basis

Bulletin No. 2025–6

increase to related partners. In the case of

a transaction described in paragraph (c)(1)

(i) of this section for determining whether

the applicable threshold is met for a taxable year, a basis increase is an increase

to the adjusted basis of the partnership’s

property under section 734(b)(1) and (c)

only to the extent of a related partner’s

share of the basis increase. For purposes

of this paragraph (c)(3)(iii), a partner’s

share of a basis increase is determined

immediately after the distribution under

rules similar to the rules of § 1.197-2(h)

(12)(iv)(D).

(iv) Basis increase under sections

732(b) or (c) only for shares of corresponding basis decreases under section

734(b) to related partners or tax-indifferent parties. In the case of a transaction described in paragraph (c)(1)(ii) of

this section for determining whether the

applicable threshold is met for a taxable

year, a basis increase is an increase to the

basis of property distributed to one of the

related partners under section 732(b) or

(c), but excluding the amount of any basis

increase that corresponds to a decrease to

the basis of property distributed to unrelated partners (other than tax-indifferent

parties) under section 732(b) and (c) or to

unrelated partners’ (other than tax-indifferent parties’) shares of a corresponding

decrease to the basis of the partnership’s

remaining property under section 734(b)

(2) and (c). For purposes of this paragraph (c)(3)(iv), a partner’s share of a

basis decrease is determined immediately

after the distribution under rules similar

to the rules of § 1.197-2(h)(12)(iv)(D).

In the case of a transaction described in

paragraph (d)(1) of this section, for purposes of determining whether the applicable threshold is met for a taxable year, a

basis increase is an increase to the basis

of property distributed to one of the partners under section 732(b) or (c) only to the

extent of a corresponding decrease to the

basis of property distributed to a tax-indifferent party under section 732(b) and (c)

or to one or more tax-indifferent party’s

shares of a corresponding decrease to the

basis of the partnership’s remaining property under section 734(b)(2) and (c).

(4) Exclusion of a transfer on the death

of a partner. A transaction described in

paragraph (c)(2) or (d)(2) of this section

does not include a transfer of a partnership

677

interest that is a transfer on the death of a

partner within the meaning of paragraph

(b)(13) of this section.

(d) Substantially similar transaction.

A transaction that is substantially similar

(within the meaning of § 1.6011-4(c)(4))

to a transaction described in paragraph (c)

of this section includes, but is not limited

to:

(1) A transaction that is described in

paragraph (c)(1)(i) or (ii) of this section

except that the partners of the partnership

are not related and one or more partners

of the partnership is a tax-indifferent party

that facilitates an increase in the basis of

partnership property or an increase in the

basis of property held by another partner in

the partnership by receiving a distribution

of property from the partnership or having a share of a corresponding decrease to

the basis of partnership property, and the

applicable threshold described in paragraph (c)(3) of this section is met; and

(2) A transaction in which a transferor

transfers an interest in a partnership to a

transferee that is related to the transferor

in a recognition transaction, and the applicable threshold described in paragraph (c)

(3) of this section is met.

(e) Participation—(1) In general.

Whether a taxpayer has participated in a

transaction of interest described in paragraph (c) of this section or a substantially

similar transaction described in paragraph

(d) of this section during a taxable year is

determined under this paragraph (e).

(2) Participating partners. A participating partner participates in a transaction

of interest described in paragraph (c)(1)

of this section or a substantially similar

transaction described in paragraph (d)

(1) of this section in any taxable year in

which the partner directly receives a distribution of property, or directly transfers

or receives an interest in a participating

partnership, in a transaction described in

paragraph (c)(2) of this section or a substantially similar transaction described in

paragraph (d)(2) of this section.

(3) Participating partnerships. A participating partnership participates in a

transaction of interest described in paragraph (c) or a substantially similar transaction described in paragraph (d) of this

section in any taxable year in which the

partnership makes a distribution of property to a participating partner in a trans-

February 3, 2025

action described in paragraph (c)(1) or (d)

(1) of this section, or a participating partnership interest is transferred in a transaction described in paragraph (c)(2) or (d)

(2) of this section.

(4) Related subsequent transferees. A

related subsequent transferee participates

in a transaction of interest described in

paragraph (c) of this section or a substantially similar transaction described in

paragraph (d) of this section in any taxable year in which the related subsequent

transferee directly receives, in a nonrecognition transaction, a transfer (including

a distribution) of property that was subject to an increase in basis as a result of a

transaction described in paragraph (c) or

(d) of this section that was required to be

disclosed under paragraph (f) of this section.

(5) Subsequent realization of tax benefit. A participating partnership, participating partner, or related subsequent transferee also participates in a transaction of

interest described in paragraph (c) or a

substantially similar transaction described

in paragraph (d) of this section in any taxable year in which its tax return reflects

the tax consequences of a basis increase

resulting from a transaction of interest

described in paragraph (c) or (d) of this

section, taking into account the limitations

provided in paragraphs (c)(3)(iii) and (iv)

of this section. For example, if a participating partner sells property the basis of

which has been increased as a result of a

transaction of interest described in paragraph (c) of this section during a taxable

year after the taxable year in which the

transaction of interest occurred, the participating partner participates in a transaction of interest described in paragraph (c)

of this section in the taxable year of the

basis increase and in the taxable year of

the sale.

(f) Disclosure requirements—(1) In

general. Except as otherwise provided in

this paragraph (f)(1), participants must

provide the information required under §

1.6011-4(d) and the Instructions to Form

8886, Reportable Transaction Disclosure

Statement (or successor form), and in the

manner described in § 1.6011-4(e), for

each taxable year in which the participant

participated in a transaction described

in paragraph (c) or (d) of this section as

determined under paragraph (e) of this

February 3, 2025

section. For all participants, describing

the transaction in sufficient detail includes

describing the information described in

paragraphs (f)(1)(i) through (iii) of this

section, as applicable, on Form 8886 (or

successor form) for the taxable year of a

transaction described in paragraph (c) or

(d) of this section. In the case of a participant that is a tax-indifferent party, the

disclosure requirements of this paragraph

(f) apply only if the tax-indifferent party is

otherwise required to file a tax return (or

an information return) for the taxable year

of the transaction described in paragraph

(d)(1) of this section.

(i) The names and identifying numbers

of all participants, including the participating partnership, participating partners

and any related subsequent transferees.

(ii) All basis adjustments resulting

from a transaction described in paragraph

(c) or (d) of this section, including—

(A) Basis information, including the

participating partnership’s adjusted basis

in the distributed property immediately

before the distribution,

(B) Any adjustments to basis under section 732(a)(2), (b), (d) or section 734(b),

(C) Any adjustments to basis under

section 743(b) with respect to a participating partner that is transferred an interest in

a participating partnership, and

(D) With respect to a participating

partner that transfers an interest in a participating partnership, that participating

partner’s adjusted basis in the participating partnership interest and share of the

participating partnership’s adjusted basis

in its property immediately before the

transfer.

(iii) Any Federal income tax consequences realized during the taxable year

as a result of a transaction described in

paragraph (c) or (d) of this section, including any cost recovery allowances attributable to any increase in basis as a result of

a transaction described in paragraph (c) of

this section, and any gain or loss attributable to the disposition of property that was

subject to an increase in basis as a result

of a transaction described in paragraph

(c) or (d) of this section. The Federal

income tax consequences attributable to

an increase in basis resulting from a transaction described in paragraph (c) or (d) of

this section are limited to those attributable to the increase in basis, taking into

678

account the limitations of paragraph (c)(3)

(iii) or (iv) of this section. For example,

in the case of a distribution of depreciable

property that was subject to an increase in

basis because of a transaction described

in paragraph (c) or (d) of this section, the

Federal income tax consequences realized

during the taxable year include the basis

increase and cost recovery allowances

attributable to the basis increase during

the taxable year.

(2) Six-year lookback period for taxable years described in special rule

of §1.6011-4(e)(2)(i). For purposes of

the special rule of § 1.6011-4(e)(2)(i)

(describing the disclosure requirement

with respect to a transaction that is identified as a transaction of interest after the

filing of the taxpayer’s tax return (including an amended return) reflecting the taxpayer’s participation in the transaction of

interest but before the end of the period of

limitations for assessment of tax for such

taxable year), a participant must provide

the information described in paragraph (f)

(1) of this section for such open years only

if the transaction described in paragraph

(c) or (d) of this section occurred within

the six-year lookback period described in

paragraph (b)(11) of this section.

(g) Examples. The following examples

illustrate the provisions of this section.

(1) Example 1: Reporting by a participating

partner and participating partnership in the taxable year of the transaction, including cost recovery

allowances—(i) Facts. ABC Partnership is owned

by partners A, B, and C. Partners A, B, and C are

related within the meaning of paragraphs (b)(8)

and (9) of this section. At the beginning of taxable

year 2025, ABC Partnership distributes a depreciable asset, Property X, to Partner A in liquidation of

Partner A’s interest in ABC Partnership. The distribution is a transaction described in paragraph (c)(1)

(ii) of this section. As a result of the distribution, the

basis of Property X is increased by $10 million in

Partner A’s hands. On its tax return for taxable year

2025, Partner A reports deductions for depreciation

expense attributable to the $10 million increase in

the basis of Property X resulting from the transaction

under paragraph (c)(1)(ii) of this section. In addition,

ABC Partnership must reduce the basis of its remaining property under section 734(b)(2) as a result of the

distribution of Property X to Partner A by $10 million. ABC Partnership and Partner A use the calendar

year as their taxable year.

(ii) Analysis. Partner A is a participant during

taxable year 2025 within the meaning of paragraph

(e) of this section because it is a participating partner

within the meaning of paragraph (b)(3) of this section

since it directly received a distribution of property

during taxable year 2025 in a transaction described

in paragraph (c) of this section. ABC Partnership

Bulletin No. 2025–6

is a participant during taxable year 2025 within the

meaning of paragraph (e) of this section because it

is a participating partnership within the meaning

of paragraph (b)(4) of this section since it made a

distribution of property to a participating partner

during taxable year 2025 in a transaction described

in paragraph (c) of this section. As part of its disclosure requirements under paragraph (f) of this section

and § 1.6011-4(d) and (e), Partner A must disclose

the distribution as a transaction of interest under this

section on Form 8886 (or successor form) and file

the form with its tax return for taxable year 2025.

Partner A must include the information described in

paragraph (f) of this section, including the amount

of the deductions attributable to the $10 million

increase in the basis of Property X resulting from the

transaction described in paragraph (c)(1)(ii) of this

section. As part of its disclosure requirements under

paragraph (f) of this section and § 1.6011-4(d) and

(e), ABC Partnership must disclose the distribution

as a transaction of interest under this section on Form

8886 (or successor form) and file the form with its

tax return for taxable year 2025, including the information described in paragraph (f) of this section. In

addition, Partner A and ABC Partnership must send

a copy of their respective Form 8886 (or successor

form) to the Office of Tax Shelter Analysis (OTSA).

(2) Example 2: Reporting of the Federal income

tax consequences (cost recovery allowances) of the

transaction in all taxable years—(i) Facts. Under

the same facts as in paragraph (g)(1)(i) of this section (Example 1), on its tax returns for taxable years

2026 through 2030, Partner A reports deductions for

depreciation expense attributable to the $10 million

increase in the basis of Property X related to the

transaction described in paragraph (c)(1)(ii) of this

section, which occurred in taxable year 2025.

(ii) Analysis. As part of its disclosure requirements under paragraph (f) of this section and §

1.6011-4(d) and (e), Partner A must disclose the

deductions on Form 8886 (or successor form)

for taxable years 2026 through 2030 as the Federal income tax consequences of the transaction

described in paragraph (c)(1)(ii) of this section. As a

result, for each of taxable years 2026 through 2030,

Partner A must file the form with its tax return for

the taxable year with the information described in

paragraph (f) of this section, including the amount

of the deductions for the taxable year attributable to

the $10 million increase in the basis of Property X

resulting from the transaction described in paragraph

(c)(1)(ii) of this section.

(3) Example 3: Reporting by a participating

partner, participating partnership, and related subsequent transferee in the taxable year of the transaction—(i) Facts. The facts are the same as in paragraph (g)(1)(i) of this section (Example 1), except

that at the beginning of taxable year 2025, instead

of distributing a depreciable asset, ABC Partnership

distributes a nondepreciable asset, Land with an

adjusted basis of $5 million, to Partner A in liquidation of Partner A’s interest in ABC Partnership.

The distribution is a transaction described in paragraph (c)(1)(ii) of this section. As a result of the

distribution, the basis of Land is increased to $15

million in Partner A’s hands. Subsequently in the

same taxable year 2025, Partner A contributes Land

to another partnership, AX Partnership, in a transfer

Bulletin No. 2025–6

that is treated as a contribution of property under section 721(a). Partner A and AX Partnership are related

within the meaning of paragraph (b)(8) of this section. ABC Partnership, Partner A and AX Partnership

use the calendar year as their taxable year.

(ii) Analysis. Partner A is a participant during

taxable year 2025 within the meaning of paragraph

(e) of this section because it is a participating partner

within the meaning of paragraph (b)(3) of this section since Partner A directly received a distribution

of property during taxable year 2025 in a transaction described in paragraph (c) of this section. ABC

Partnership is a participant during taxable year 2025

within the meaning of paragraph (e) of this section

because it is a participating partnership within the

meaning of paragraph (b)(4) of this section since

it made a distribution of property to a participating

partner during taxable year 2025 in a transaction

described in paragraph (c) of this section. AX Partnership is a participant during taxable year 2025

within the meaning of paragraph (e) of this section

because it is a related subsequent transferee within

the meaning of paragraph (b)(10) of this section

since it directly received in a nonrecognition transaction a transfer of property during taxable year 2025

that was subject to an increase in basis because of a

transaction described in paragraph (c) of this section.

As part of its disclosure requirements under paragraph (f) of this section and § 1.6011-4(d) and (e),

Partner A must disclose the distribution as a transaction of interest under this section on Form 8886

(or successor form) and file the form with its tax

return for taxable year 2025. Partner A must include

the information described in paragraph (f) of this

section. As part of its disclosure requirements under

paragraph (f) of this section and § 1.6011-4(d) and

(e), ABC Partnership must disclose the distribution

as a transaction of interest under this section on Form

8886 (or successor form) and file the form with its

tax return for taxable year 2025, including the information described in paragraph (f) of this section.

Further, AX Partnership is subject to the disclosure

requirements under paragraph (f) of this section and

§ 1.6011-4(d) and (e). AX Partnership must disclose

that it is a related subsequent transferee within the

meaning of paragraph (b)(10) of this section that

received, in a nonrecognition transaction, a transfer

of property that was distributed in a transaction of

interest under this section on Form 8886 (or successor form) and file the form with its tax return

for taxable year 2025. In addition, Partner A, ABC

Partnership and AX Partnership must send a copy of

their respective Form 8886 (or successor form) to the

OTSA.

(4) Example 4: Reporting of the Federal income

tax consequences (reduced taxable gain) of the

transaction in the taxable year of disposition of the

property—(i) Facts. Under the same facts as in paragraph (g)(3)(i) of this section (Example 3), in taxable

year 2026, AX Partnership disposes of Land in a taxable sale for its fair market value of $15 million and

recognizes no gain or loss.

(ii) Analysis. As part of its disclosure requirements under paragraph (f) of this section and §

1.6011-4(d) and (e), AX Partnership must disclose

the taxable gain (zero) on the disposition of Land on

Form 8886 (or successor form) for taxable year 2026

as the Federal income tax consequences of the trans-

679

action described in paragraph (c)(1)(ii) of this section. AX Partnership must file the form with its tax

return for taxable year 2026. Partner A does not have

a disclosure requirement with respect to AX Partnership’s disposition of Land because the disposition is

a subsequent realization of a tax benefit within the

meaning of paragraph (e)(5) of this section with

respect to AX Partnership.

(5) Example 5. Reporting of a transaction of

interest that occurred within the six-year lookback

period—(i) Facts. The facts are the same as in paragraph (g)(1)(i) of this section (Example 1), except

that instead of ABC Partnership distributing Property X in taxable year 2025, the distribution is made

in May of taxable year 2022, which is within the

six-year lookback period described in paragraph (b)

(11) of this section. That is, the distribution occurred

within the seventy-two months immediately preceding January 2025, the first month of the taxpayer’s

most recent taxable year that began before January

2025. Further, taxable year 2022 is an open taxable

year subject to the special rule of § 1.6011-4(e)(2)(i).

Additionally, neither Partner A nor ABC Partnership

engages in any other transaction described in paragraph (c) or (d) of this section for taxable year 2022.

(ii) Analysis. Because the transaction occurred

within the six-year lookback period described in

paragraph (b)(11) of this section, the applicable

threshold described in paragraph (c)(3)(i) of this

section is $25 million as provided in paragraph (c)

(3)(ii) of this section. The distribution of Property X

to Partner A is not a transaction described in paragraph (c)(1)(ii) of this section with respect to either

Partner A or ABC Partnership because the applicable

threshold is not met for taxable year 2022. Had the

applicable threshold for taxable year 2022 been met,

all the information required by paragraph (f)(1) of

this section must be reported in its disclosure for taxable year 2022 and for any subsequent taxable year

for which the taxpayer’s return reflected the tax consequences of the transaction.

(6) Example 6. No reporting of a transaction of

interest for transaction that occurred prior to the

six-year lookback period—(i) Facts. The facts are

the same as in paragraph (g)(1)(i) of this section

(Example 1), except that as a result of the distribution of Property X to Partner A, the basis of Property

X is increased by $30 million, and the distribution

occurred in December of taxable year 2018, which

is prior to the six-year lookback period described in

paragraph (b)(11) of this section. That is, the transaction occurred prior to January 2019, which is the

beginning of the seventy-two-month period that ends

in December 2024. In addition, taxable year 2018 is

an open taxable year subject to the special rule of

§ 1.6011-4(e)(2)(i). Further, Partner A realized Federal income tax consequences (depreciation expense)

in taxable year 2019 attributable to the $30 million

increase to the basis of Property X and taxable year

2019 is an open taxable year subject to the special

rule of § 1.6011-4(e)(2)(i).

(ii) Analysis. Because taxable year 2018 is not

within the six-year lookback period, under paragraph

(f)(2) of this section, neither the distribution of Property X to Partner A, nor any of the Federal income

tax consequences arising in that taxable year or later

taxable years (such as depreciation expense in taxable year 2019 or any later taxable year) from such

February 3, 2025

distribution, is required to be disclosed under paragraph (f) of this section and §§1.6011-4(d) and (e).

(7) Example 7. Corresponding basis decrease

under section 734(b)(2)(B) shared by an unrelated

partner—(i) Facts. The facts are the same as in paragraph (g)(1)(i) of this section (Example 1), except

Partner C is unrelated to Partners A and B and is not a

tax-indifferent party. As a result of the distribution of

Property X to Partner A, and the increase to the basis

of Property X by $10 million in Partner A’s hands,

ABC Partnership is required to reduce the adjusted

basis of its remaining properties under section

734(b)(2)(B) by $10 million. Partner B’s and Partner C’s share of ABC Partnership’s basis decrease to

its remaining properties is $5 million each. Neither

Partner A nor ABC Partnership engages in any other

transaction described in paragraph (c) of this section

for taxable year 2025.

(ii) Analysis. For purposes of paragraphs (c)(1)

(ii) and (c)(3)(i) of this section, under paragraph (c)

(3)(iv) of this section, only $5 million of the $10 million basis increase to Property X counts toward the

applicable threshold because $5 million of the basis

increase corresponds to unrelated Partner C’s share

of the decrease to the basis of ABC Partnership’s

remaining properties under section 734(b)(2)(B) and

thus, is excluded from the calculation of the appli-

February 3, 2025

cable threshold. Thus, the distribution of Property X

to Partner A is not a transaction described in paragraph (c)(1)(ii) of this section with respect to either

Partner A or ABC Partnership because the applicable

threshold is not met for taxable year 2025.

(h) Extension of time—(1) Taxpayer

disclosures. Taxpayers will be treated as

having met their requirements to disclose

timely under §1.6011-4(e)(2)(i) if they file

their disclosure with the OTSA by January

14, 2025.

(2) Material advisor disclosures. Material advisors who have made a tax statement before January 14, 2025 will be

treated as having met their requirements

to disclose timely under § 301.6111-3(e)

of this chapter if they file their disclosure with the OTSA by the date that is an

additional 90 days beyond the last day for

filing specified in § 301.6111-3(e) of this

chapter.

(i) Applicability date—(1) In general.

This section’s identification of transactions that are the same as or substantially

680

similar (within the meaning of § 1.60114(c)(4)) to the transactions described in

paragraph (c) of this section as transactions of interest for purposes of §1.60114(b)(6) and sections 6111 and 6112 of the

Code is effective January 14, 2025.

(2) Material advisors. Notwithstanding § 301.6111-3(b)(4)(i) and (iii) of this

chapter, material advisors are required

to disclose only if they have made a tax

statement on or after January 9, 2031.

Douglas W. O’Donnell,

Deputy Commissioner.

Approved: January 3, 2025.

Aviva R. Aron-Dine,

Deputy Assistant Secretary of the

Treasury (Tax Policy).

(Filed by the Office of the Federal Register January

10, 2025, 8:45 a.m., and published in the issue of the

Federal Register for January 14, 2025, 90 FR 2958)

Bulletin No. 2025–6

Part III

Section 45W Credit for

Qualified Commercial

Clean Vehicles and

Incremental Cost for

2025

Notice 2025-9

SECTION 1. PURPOSE

This notice provides safe harbors

regarding the incremental cost and retail

price equivalent (RPE) of certain qualified

commercial clean vehicles for purposes of

the credit for qualified commercial clean

vehicles under section 45W of the Internal

Revenue Code (Code).1

SECTION 2. BACKGROUND

.01 Section 13403(a) of Public Law

117-169, 136 Stat. 1818 (August 16,

2022), commonly known as the Inflation

Reduction Act of 2022, added section

45W to the Code to allow a credit for

qualified commercial clean vehicles (section 45W credit). The section 45W credit

is effective for vehicles acquired after

December 31, 2022, and before January

1, 2033.

.02 For purposes of the General Business Credit under section 38 of the Code,

section 45W(a) allows a taxpayer to claim

a credit for the acquisition of each qualified commercial clean vehicle, as defined

in section 45W(c), placed in service by

the taxpayer during the taxable year. The

amount of the section 45W credit allowed

for each qualified commercial clean vehicle is the lesser of (1) 15 percent of the

taxpayer’s basis in the vehicle (30 percent in the case of a vehicle not powered

by a gasoline or diesel internal combustion engine), or (2) the incremental cost

of the vehicle. See section 45W(b)(1).

Under section 45W(b)(4), the maximum

credit allowed is $7,500 for a qualified

commercial clean vehicle that has a gross

vehicle weight rating (GVWR) of less

than 14,000 pounds, and $40,000 for all

other vehicles.

.03 Section 45W(b)(2) provides that

the incremental cost of any qualified commercial clean vehicle is the excess of the

purchase price of such vehicle over the

purchase price of a comparable vehicle.

A comparable vehicle with respect to any

qualified commercial clean vehicle is any

vehicle that is powered solely by a gasoline or diesel internal combustion engine

and is comparable in size and use to such

qualified commercial clean vehicle. See

§ 45W(b)(3).

.04 On January 17, 2023, the Department of the Treasury (Treasury Department) and the Internal Revenue Service

(IRS) published Notice 2023-9, 2023-3

I.R.B. 402, which provides a safe harbor for purposes of the section 45W

credit regarding the incremental cost

of certain qualified commercial clean

vehicles placed in service in calendar

year 2023, based on a December 2022

incremental cost analysis by the U.S.

Department of Energy (DOE) across

classes of clean vehicles (DOE Analysis).2 The DOE Analysis modeled

the costs of representative clean vehicles and comparable internal combustion engine vehicles. For this purpose,

clean vehicles included battery electric,

plug-in hybrid electric, and fuel cell

electric vehicles.

.05 On January 8, 2024, the Treasury Department and the IRS published Notice 2024-5, 2024-2 I.R.B.

347, which provides a safe harbor for

purposes of the section 45W credit

regarding the incremental cost of certain qualified commercial clean vehicles

placed in service in calendar year 2024,

based on the DOE Analysis updated

to incorporate minor modifications in

December 2023.3 The minor modifications did not change the results of the

analysis conducted in December 2022.

Notice 2024-5 also requested comments

regarding additional types or classes of

vehicles that should be included in the

safe harbor in the future. The Treasury

Department and the IRS received comments in response to Notice 2024-5 and

carefully considered them.

.06 The DOE updated the DOE Analysis in a report published in January

2025 to incorporate further modifications

(DOE’s January 2025 Report).4 First, the

DOE’s January 2025 Report updates the

analysis of component and vehicle manufacturing costs, including refinements

to the approach previously employed

for determining an incremental purchase

cost for battery electric, plug-in hybrid

electric, and fuel cell electric vehicles.

Second, the DOE’s January 2025 Report

expands medium- and heavy-duty vehicle classes previously analyzed and

updates results based on current costs of

technology. These modifications changed

the results of the analysis conducted in

December 2022 and updated in December 2023.

.07 In addition to modeled incremental costs, the DOE’s January 2025 Report

explicitly identifies the RPEs used in the

DOE Analysis, that is, the factors applied

to the component and vehicle manufacturing costs to account for additional

indirect costs and profits when modeling

the incremental cost of a class of vehicle.

In cases where taxpayers do not rely on

modeled incremental cost safe harbors

Unless otherwise specified, all “section” or “§” references are to sections of the Code.

U.S. Department of Energy, “2022 Incremental Purchase Cost Methodology and Results for Clean Vehicles,” December 2022, available at https://www.energy.gov/sites/default/files/202212/2022.12.23%202022%20Incremental%20Purchase%20Cost%20Methodology%20and%20Results%20for%20Clean%20Vehicles.pdf.

3

U.S. Department of Energy, “Incremental Purchase Cost Methodology and Results for Clean Vehicles,” originally published December 2022 and amended December 2023, available

at https://www.energy.gov/sites/default/files/2023-12/2023.12.18%20Incremental%20Purchase%20Cost%20Methodology%20and%20Results%20for%20Clean%20Vehicles%20pub%20

12-2022%20amd%2012-2023%20Final_2.pdf.

4

U.S. Department of Energy, “2025 Incremental Purchase Cost Methodology and Results for Clean Vehicles,” January 2025, available at https://www.energy.gov/sites/default/files/202501/2025.01.13_DOE_Incremental_Cost_Report_for_publication.pdf..

1

2

Bulletin No. 2025–6

681

February 3, 2025

(which in every case already incorporate

the appropriate RPE), taxpayers may use

the RPEs provided in the DOE’s January

2025 Report to determine incremental

cost.

.08 On January 14, 2025, the Treasury Department and the IRS published a

notice of proposed rulemaking that contains proposed regulations issued under

section 45W (REG-123525-23) in the

Federal Register (proposed regulations),

90 FR 3506.

SECTION 3. SAFE HARBORS

.01 Incremental cost of a qualified

commercial clean vehicle.

(1) The DOE’s January 2025 Report

provides a modeled incremental cost

analysis based on current costs across

several classes of clean vehicles. For

any qualified commercial clean vehicle not previously placed in service by

another person or entity, the IRS will

accept a taxpayer’s use of the modeled

incremental cost published in table ES-2

in the DOE’s January 2025 Report for

the appropriate class of clean vehicle to

establish the incremental cost of a qualified commercial clean vehicle placed in

service by the taxpayer on or after January 1, 2025. An incremental cost established under this section 3.01(1) is used

to identify the lesser of (1) 15 percent

of the taxpayer’s basis in the vehicle

(30 percent in the case of a vehicle not

powered by a gasoline or diesel internal

combustion engine), or (2) the incremental cost of the vehicle for purposes

of section 45W(b)(1).

(2) For any qualified commercial

clean vehicle previously placed in service by another person or entity, the

IRS will accept a taxpayer’s application of the modeled incremental cost of

the qualified commercial clean vehicle

when new, as determined by reference

to the IRS safe harbor guidance that

corresponds to the model year of such

vehicle,5 to the rules found in proposed

§1.45W-2(f) of the proposed regulations

to establish the incremental cost of such

qualified commercial clean vehicle. Proposed §1.45W-2(f)(1) provides that the

incremental cost of a qualified commercial clean vehicle previously placed in

service by another person or entity is the

product of the incremental cost of the

qualified commercial clean vehicle (that

is, the incremental cost of such vehicle

when new) and the residual value factor that corresponds to the age of the

qualified commercial clean vehicle as

described in that section. An incremental cost established under this section

3.01(2) is used to identify the lesser of

(1) 15 percent of the taxpayer’s basis in

the vehicle (30 percent in the case of a

vehicle not powered by a gasoline or

diesel internal combustion engine), or

(2) the incremental cost of the vehicle

for purposes of section 45W(b)(1). A

taxpayer may use the safe harbor in this

section 3.01(2) with respect to any qualified commercial clean vehicle placed in

service by the taxpayer after December

31, 2022.

.02 Retail price equivalent. The DOE’s

January 2025 Report provides the RPEs

used by the DOE for purposes of modeling incremental cost across several classes

of clean vehicles. In cases where taxpayers do not use a modeled incremental cost

safe harbor, such as those provided in

section 3.01 of this notice, the IRS will

accept taxpayers’ use of the RPEs published in table 4 of the DOE’s January

2025 Report for the appropriate class of

clean vehicle to calculate the incremental

cost of qualified commercial clean vehicles. A taxpayer may use the safe harbor

in this section 3.02 with respect to any

qualified commercial clean vehicle placed

in service by the taxpayer after December

31, 2022.

SECTION 4. EFFECT ON OTHER

DOCUMENTS

Section 3.01(2) of this notice clarifies

the application of the guidance provided

in Notice 2023-9 and Notice 2024-5 to

qualified commercial clean vehicles previously placed in service by another person

or entity. Section 3.02 of this notice amplifies Notice 2023-9 and Notice 2024-5 by

providing that the RPEs published in the

DOE’s January 2025 Report may be used

to calculate the incremental cost of qualified commercial clean vehicles placed in

service by taxpayers after December 31,

2022.

SECTION 5. EFFECTIVE DATE

This notice is effective on January 15,

2025, and will remain in effect through the

day before the effective date of superseding guidance published in the IRB or the

Federal Register.

SECTION 6. DRAFTING

INFORMATION

The principal author of this notice is

the Office of Associate Chief Counsel

(Energy, Credits, and Excise Tax). However, other personnel from the Treasury

Department and the IRS participated in

its development. For further information regarding this notice contact Chief

Counsel at (202) 317-5254 (not a tollfree call).

Section 45Z Clean Fuel

Production Credit; Request

for Public Comments

Notice 2025-10

SECTION 1. PURPOSE

This notice announces that the Department of the Treasury (Treasury Department) and the Internal Revenue Service

(IRS) intend to propose regulations (forthcoming proposed regulations) addressing

the clean fuel production credit determined under § 45Z of the Internal Reve-

For example, the safe harbor incremental cost of a model year 2023 vehicle is determined by reference to Notice 2023-9, and the safe harbor incremental cost of a model year 2024 vehicle

is determined by reference to Notice 2024-5.

5

February 3, 2025

682

Bulletin No. 2025–6

nue Code (§ 45Z credit),1 which applies

to eligible transportation fuel produced

domestically after December 31, 2024,

that is sold by December 31, 2027. In

addition to providing background on the

§ 45Z credit, this notice explains the rules

that the Treasury Department and the

IRS intend to propose in the forthcoming

proposed regulations and requests public

comments on the draft text of the forthcoming proposed regulations contained in

the appendix to this notice. Notice 202511, this Bulletin, provides additional guidance on fuel emissions rates for purposes

of the § 45Z credit and contains the initial

emissions rate table described in § 45Z(b)

(1)(B)(i).

The Treasury Department and the IRS

developed this notice and Notice 2025-11

in consultation with the Department of

Energy (DOE), the Environmental Protection Agency (EPA), the United States

Department of Agriculture, and other Federal agencies.

SECTION 2. BACKGROUND

.01 Overview of § 45Z. Section 45Z,

added to the Code by § 13704 of Public Law 117-169, 136 Stat. 1818, 1997

(August 16, 2022), commonly known as

the Inflation Reduction Act of 2022 (IRA),

provides an income tax credit for clean

transportation fuel produced domestically

after December 31, 2024, and sold by

December 31, 2027. The § 45Z credit is a

general business credit under § 38.

To qualify for the § 45Z credit, a taxpayer must: (1) produce a transportation

fuel that has a lifecycle greenhouse gas

emissions rate (emissions rate) of not

greater than 50 kilograms (kg) of CO2e

per mmBTU2 and that satisfies certain

suitability and coprocessing requirements;

(2) produce the fuel in the United States at

a qualified facility; (3) be registered as a

producer of clean fuel under § 4101 at the

time of production; and (4) sell the fuel to

an unrelated person in a qualifying manner

during the taxable year. See § 45Z(a)(1) &

(4), (d)(4)-(5)(A), and (f)(1). A taxpayer

producing a transportation fuel that is sustainable aviation fuel (SAF transportation

fuel) must also provide

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