The IRS has issued final regs that permanently resolve a longstanding compliance problem by removing the requirement that partnerships furnish complex IRC § 751 gain and loss information to selling partners by January 31, instead aligning that deadline with the due date of the partnership’s Schedule K-1. (T.D. 10048, 5/20/2026)
The final regs adopt, without change, a set of proposed regs (REG-108822-25) that were issued in August 2025. The core of the change is to move the deadline for providing detailed information about a partner’s share of gain or loss from the deemed sale of IRC § 751 property from January 31 to the later due date of the partnership’s Schedule K-1.
Background on Partnership Interest Sales and Reporting
Generally, when a partner sells or exchanges their interest in a partnership, the resulting gain or loss is considered a capital gain or loss under IRC § 741. However, a major exception to this rule exists under IRC § 751(a). This provision requires that any portion of the proceeds from the sale that is attributable to the partner’s share of the partnership’s unrealized receivables and inventory items must be treated as ordinary income. These assets would generate ordinary income if sold directly by the partnership. This bifurcated treatment ensures that amounts attributable to unrealized receivables and inventory items are taxed as ordinary income rather than as gain from the sale of a capital asset.
To ensure compliance with these rules, IRC § 6050K establishes a reporting framework. When a sale or exchange involving Section 751(a) assets occurs, the partnership must file a return on Form 8308, Report of a Sale or Exchange of Certain Partnership Interests, with its annual Form 1065, U.S. Return of Partnership Income. Additionally, under IRC § 6050K(b), the partnership is required to furnish a statement to both the transferor (seller) and transferee (buyer) partners by January 31 of the year following the exchange, providing them with information from the return.
Prior Rules Created Compliance Challenge
The reporting process became complicated following the issuance of final regs in 2020 (T.D. 9926). Those rules revised Form 8308 to include a new Part IV, which required the partnership to calculate and report the transferor partner’s share of gain or loss from the deemed sale of the partnership’s § 751 property. The 2020 regs also added Reg § 1.6050K-1(c)(2), which effectively required partnerships to provide this complex Part IV information to the selling partner by the existing January 31 furnishing deadline.
In the preamble to the new final regs, the Treasury Department explained that it received numerous comments from stakeholders stating that this deadline was often impossible to meet. Partnerships argued that the calculations required for Part IV could not be accurately completed until after the partnership’s books were closed for the year and all year-end accounting and allocation work was finalized, a process that almost always extends beyond January 31.
Acknowledging these concerns, the IRS had issued temporary relief from penalties for failures to timely furnish Part IV for exchanges in 2023 (Notice 2024-19) and 2024 (Notice 2025-2).
Final Regs Adopt Proposed Solution
The new final regs provide a permanent solution by removing Reg § 1.6050K-1(c)(2), the provision that created the accelerated deadline. By eliminating this paragraph, the rules decouple the deadline for furnishing the complex Part IV information from the January 31 date. Instead, partnerships will now be required to provide the information necessary for the partner to calculate their ordinary income portion of the sale on or with the partner’s Schedule K-1 (Form 1065) for the year of the exchange. This change aligns the reporting of this complex data with the partnership’s natural end-of-year tax compliance cycle.
This approach finalizes the solution that was first put forward in proposed regs issued in August 2025. According to the Treasury, no public comments were received on the proposed rules, and no public hearing was requested or held. As a result, the final regs adopt the proposed version without changes
Unchanged Reporting Obligations and Effective Date
While the final regs provide relief on the timing for furnishing Part IV information, other reporting duties remain unchanged. Partnerships must still furnish a statement containing the information in Parts I, II, and III of Form 8308 to both the transferor and transferee partners. This statement, which includes basic information such as the names, addresses, and TINs of the parties and the date of the exchange, is due by the later of January 31 of the year following the exchange or 30 days after the partnership receives notice of the exchange.
Furthermore, the partnership’s obligation to file a complete Form 8308, including the detailed calculations in Part IV, with its annual Form 1065 tax return also remains fully in effect. The relief provided by the final regs is narrowly targeted at the deadline for furnishing the Part IV data to the selling partner. The new rules apply to returns filed for tax years ending on or after May 20, 2026.
However, the regs also state that partnerships may choose to rely on the rules for any exchanges that occurred on or after January 1, 2025, but before the final regs were officially published.
For more on the treatment of gain or loss on a partner’s transfer of interest under § 751, see Checkpoint’s Federal Tax Coordinator 2d ¶ B-3803.
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