“Hot Asset” Reporting Relief for Partnership Form 8308s

In recent developments, the Department of the Treasury and the IRS have acknowledged the challenges faced by partnerships in complying with the reporting requirements for certain sales or exchanges involving unrealized receivables or inventory items, as outlined in §751(a) of the Internal Revenue Code.

This acknowledgment comes in response to concerns raised by various stakeholders about the difficulties in furnishing the necessary information within the stipulated deadlines.

For real estate partnerships, the recently issued “hot asset” relief can be particularly beneficial as it can reduce the compliance burden of performing complex calculations prior to information often being available when there is a sale or exchange of partnership interest, which occurs relatively frequently in real estate.

Background of the reporting requirement

Under §6050K and §1.6050K-1, partnerships with §751 "hot asset" property are required to provide detailed information to both transferors and transferees involved in a sale or exchange of partnership interests.

This information must be reported on Form 8308, Report of a Sale or Exchange of Certain Partnership Interests, which is to be provided to both parties by the later of January 31 of the year following the sale or exchange, or 30 days after the partnership is notified of the transaction. The Form is also attached to the partnership’s Form 1065, U.S. Return of Partnership Income. The reporting requirements are designed to support transparency and accurate reporting of gains or losses attributable to §751 property, which includes unrealized receivables and inventory items.

Granting of relief

Recognizing the practical challenges in meeting the January 31 deadline, the IRS recently issued Notice 2025-2, which provides relief from penalties under §6722 for failure to furnish correct payee statements in a timely manner.

This is similar to the relief provided in Notice 2024-19 for calendar year 2023 transactions and applies to partnerships that fail to furnish Part IV of Form 8308 by the due date specified in §1.6050K-1(c)(1) for exchanges occurring in calendar year 2024.

To qualify for this relief, partnerships must still furnish the correct information for Parts I, II, and III of Form 8308 by the specified deadlines (generally January 31, 2025, for 2024 transactions).

The Treasury and IRS’s response, while providing some relief, highlights the ongoing difficulties and complexities faced by taxpayers in meeting their compliance and reporting obligations. This situation underscores the need for more practical and streamlined reporting processes.