The IRS’ New Partnership “Related Party” Transaction Disclosure Requirements: What Partners and Tax Advisors Need to Know

The Internal Revenue Service (IRS) has issued a new set of regulations governing certain partnership “related party” transactions. Under the new regulations, some of these transactions now constitute “transactions of interest,” which means they are subject to federal reporting requirements. Learn more from Virginia tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group.

New Reporting Requirements for Certain “Related Party” Transactions in 2025

The IRS’ new regulations apply specifically to two types of transactions involving partnerships and related entities. Effective January 14, 2025, the following transactions may qualify as “transactions of interest” if they meet the dollar-amount thresholds stated in the regulations:

• “[T]ax-free distribution of partnership property to a partner that is related to one or more partners of the partnership;” and,
• “[T]ax-free transfer of a partnership interest by a related partner to a related transferee.”

For transactions closed in 2024 and prior tax years, reporting is only required for transactions resulting in a basis increase of $25 million or more. For transactions closed in the 2025 tax year or later, reporting is required for covered transactions resulting in a basis increase of $10 million or more. Regarding prior tax years, the IRS explains that “[t]o address comments on creating an unnecessary burden for taxpayers subject to the disclosure rules of the final regulations, . . . IRS [is limiting] reporting for open tax years to those that fall within a six-year lookback window.”

Understanding the Implications of “Transaction of Interest” Designation

“Transaction of interest” (or “TOI”) is a term that the IRS uses to describe transactions that are often used to facilitate unlawful tax avoidance or tax evasion. Under existing regulations, the IRS can designate transactions as TOIs in order to facilitate both compliance and enforcement. Once the IRS has classified a transaction as a TOI, taxpayers and tax advisors are required to disclose covered transactions, and failure to disclose covered transactions can trigger steep penalties.

Whether disclosed or undisclosed, TOIs have the potential to trigger scrutiny from the IRS as well. IRS audits targeting partnerships, partners and their tax advisors can also create substantial liability exposure. As a result, going forward, entities and individuals involved in covered partnership “related party” transactions will need to prioritize compliance, and they will need to be prepared to withstand scrutiny from the IRS if necessary. Under the IRS’ regulations, the disclosure deadline for newly consummated transactions is 90 days from the date of the transaction, while partnerships, partners and tax advisors have 90 days from January 14, 2025 to disclose covered transactions from prior tax years.

Request an Appointment with Virginia Tax Attorney Kevin E. Thorn

If you have questions or concerns about the IRS’ new disclosure requirements for partnership “related party” transactions in 2025, we invite you to get in touch. Virginia tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, can explain everything you need to know. To request an appointment with Mr. Thorn, please call 703-752-3752 or contact us confidentially online today.