Key Takeaways:
- The IRS has proposed rules eliminating the need to furnish Part IV of Form 8308 to partners in most cases.
- Partnerships must still complete full Form 8308 and file it with Form 1065, but new relief simplifies what is sent to partners.
- These changes apply to Section 751 exchanges occurring in the 2025 tax year, and offer welcome certainty after two years of temporary relief.
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Partnerships dealing with Section 751(a) exchanges — those involving so-called “hot assets” like unrealized receivables or inventory items — have faced mounting reporting complexity over the past several years. Form 8308, which must be furnished to transferor and transferee partners in these exchanges, was significantly expanded in late 2023. But in 2025, the IRS proposed regulations offering targeted relief that streamlines these reporting obligations.
Private companies operating through partnerships should understand what has changed, what is still needed, and how to remain compliant.
The Burden of Expanded Form 8308 Reporting
The revised Form 8308, released in October 2023, introduced new Parts III and IV, significantly increasing the reporting burden for partnerships involved in Section 751(a) exchanges. These exchanges occur when a partner transfers their interest, and some of the proceeds relate to unrealized receivables or inventory — assets that trigger ordinary income treatment rather than capital gain.
Under earlier rules, partnerships were expected to furnish the full form — including detailed breakdowns of ordinary income, collectible gains, and unrecaptured Section 1250 gain — by January 31 following the year of the transfer. In many cases, partnerships lacked the data needed to complete Part IV by that deadline, especially when notice of the transaction came late or data from transferor partners was incomplete.
Recognizing the compliance challenges, the IRS offered temporary relief through Notice 2024-19 and Notice 2025-02. But that relief was short-term, and uncertainty stayed.
What the Proposed Regulations Change
In August 2025, the IRS issued proposed regulations that address the most problematic aspect of the expanded Form 8308: the deadline for furnishing Part IV to transferors and transferees.
Under the proposal:
- Partnerships no longer need to offer Part IV to partners by January 31 (or within 30 days of receiving transaction notice).
- They still must give Parts I, II, and III to the transferor and transferee within the standard timeline.
- Part IV must still be completed and attached to the partnership Form 1065 for the tax year that includes the exchange.
This distinction is important: the IRS still wants complete information, but the burden of giving it directly to partners under tight deadlines has been lifted — at least for now.
When the Changes Apply
The proposed rules apply to Section 751(a) exchanges occurring on or after January 1, 2025, and are effective immediately — even though final regulations have not yet been issued. This gives partnerships more certainty as they close their books for 2025.
The IRS also plans to revise the instructions to Form 8308 to align with these rules.
What Hasn’t Changed
While the furnishing burden has been eased, other obligations are still intact:
- Partnerships must still decide if a Section 751(a) exchange occurred.
- The full Form 8308, including Part IV, must still be filed with the IRS and attached to the partnership Form 1065.
- Statements must still be furnished to both transferor and transferee with accurate and timely information for Parts I–III.
- Penalties under Section 6722 may still apply if needed information is incomplete, inaccurate, or delivered late.
For exchanges where the partnership receives delayed notice — or where details of unrealized receivables or inventory are not available — these clarifications offer some administrative breathing room.
Practical Planning Considerations
As partnerships consider year-end tax filings and upcoming transactions, several steps can help reduce risk and improve compliance:
- Evaluate your current 8308 process: Confirm whether you are prepared to distinguish which parts must be furnished versus filed.
- Communicate early with transferor partners to gather any needed information related to hot asset allocation.
- Update your internal tracking of Section 751 exchanges — especially those that occur late in the calendar year.
- Coordinate with tax preparers to support accurate Form 1065 attachments for timely IRS filing.
For firms handling multiple transfers or with tiered partnership structures, proactive tracking will be key to avoiding penalties and back-end cleanup.
Your Path to Easier Year-End Reporting
MGO supports private companies navigating complex partnership reporting obligations — including those related to Form 8308 and Section 751(a) exchanges. We help show which reporting applies, streamline documentation, and provide guidance on both short-term compliance and longer-term structure.
With long-awaited clarity, now is the time to reassess internal processes and avoid unnecessary friction. Contact our team today to streamline your partnership reporting and avoid stress at tax time.