The Internal Revenue Service (IRS) released the final version of Form 7217, Partner’s Report of Property Distributed by a Partnership, along with the applicable instructions.
The initial draft of the instructions was released on September 3, 2024, and the initial draft of the form was released on August 28, 2024.
Tracking of a partner’s basis in its partnership interest (“outside basis”) is required for each partner and is used to compute gain or loss on the disposition of the partner’s interest in the partnership and the deductibility of losses. The introduction of Form 7217 provides a uniform method of reporting property distributions from partnerships to their partners and facilitates the proper computation of any gain or loss that may be attributable to such property distributions.
Partnerships that distribute property subject to reporting are required to provide partners’ relevant information on Box 19c of Schedule K-1 (Form 1065). If this information is not provided and the partner received property subject to the new reporting requirements, the partner needs to contact the partnership to obtain the relevant information to complete Form 7217.
Below is an overview of the new form, including information on who must file and when.
Who Must File
For tax years beginning in 2024 or later, any partner receiving property subject to Internal Revenue Code (IRC) § 732 from a partnership in both a liquidating and non-liquidating transaction must prepare Form 7217. A separate Form 7217 is required to be filed for each date Section 732 properties are distributed, even if the distribution is part of the same transaction.
Exceptions to Filing
Form 7217 is not required in the following instances:
- Distributions consisting only of money or marketable securities treated as money under IRC §731(c);
- Distributions for services under IRC §707(a)(1) when the partner is not acting in the capacity as a partner;
- Transfers that are treated as disguised sales under IRC §707(a)(2)(B); or
- Constructive receipt of distributed property (e.g., relief of liabilities). There must be an actual receipt of property.
How and When the Form is Filed
Form 7217 is due and filed with a partner’s annual tax return, including extensions, in the year the property subject to Section 732 is received. For example, individuals filing Form 1040 who received a distribution from a partnership subject to the new reporting requirements should include Form 7217 with their timely filed Form 1040, including extensions.
Information Required to Be Included
The partner must provide detailed information, including:
- Description of property distributed, including property code if applicable;
- The partnership’s basis in the distributed property immediately before the distribution;
- Whether the property is subject to §§732(d), 732(f), 734(b), 743(b);
- Fair market value of each property distributed;
- Partner’s basis in the distributed property after the application of §732;
- Cash received as part of the total distribution; and
- Adjusted basis of the partner’s interest in the partnership immediately before the distribution.
Please contact any member of Schneider Downs’ tax practice with questions related to the new filing requirement, and we can help you navigate your specific circumstances.
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