Partnerships Get Extra Time to Furnish Payee Statements for 2024 Exchanges

The IRS has issued further penalty relief for partnerships that fail to furnish Form 8308, Report of a Sale or Exchange of Certain Partnership Interests, on time. This extension applies to exchanges of partnership interests (§751(a) exchanges) occurring in the 2024 calendar year. (Notice 2025-02, 2025-3 IRB)

Understanding Partnership Interest Exchanges

Under IRS regulations, partnerships must report certain exchanges of partnership interests under §751(a). These exchanges often involve transfers of partnership assets that produce ordinary income, like unrealized receivables.

Here’s how the reporting works:

1. Partnerships file Form 8308 with the IRS when submitting their partnership tax return (Form 1065), including any extensions.
2. They must also furnish Form 8308 or a qualified statement to the transferor and transferee. This statement is due by:
   1. January 31 of the year following the exchange, or
   2. 30 days after the partnership receives notice of the exchange.

Failing to furnish the correct payee statements on time, or including incorrect information, results in penalties.

Why Partnerships Face Challenges

Partnerships often struggle to collect all necessary details required for Form 8308. Specifically, Part IV of the form involves detailed exchange information that may not be available by the January 31 deadline. Recognizing this challenge, the IRS issued previous relief under Notice 2024-19 for exchanges occurring in 2023.

Now, the IRS extends similar relief for the 2024 calendar year, acknowledging that partnerships still face data-gathering hurdles.

Details of the New Penalty Relief

For §751(a) exchanges occurring in 2024, the IRS will waive penalties if partnerships meet the following conditions:

1. Timely Partial Submission:
   Partnerships must timely and correctly furnish:
   1. Parts I to III of Form 8308, or
   2. A statement containing the same information.
2. The deadline is:
   1. January 31, 2025, or
   2. 30 days after the partnership receives notice of the exchange.
3. Complete Submission by Final Deadline:
   Partnerships must furnish the full Form 8308, including Part IV, to the transferor and transferee by:
   1. The due date of Form 1065 (including extensions), or
   2. 30 days after receiving notice of the exchange.

What This Relief Does Not Cover

This penalty relief only applies to a partnership’s obligation to furnish Form 8308 to transferors and transferees for 2024 §751(a) exchanges. It does not:

1. Apply to penalties for failure to file the form with the IRS.
2. Relieve transferor partners from notifying partnerships of the exchange.

Impact on Partnerships

This additional relief provides partnerships with valuable time to comply with reporting obligations. However, partnerships should still prioritize timely submissions to avoid potential penalties. Ensuring correct and prompt reporting helps maintain compliance while easing the administrative burden.

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