Section 751(a) & Updated Form 8308: Sales of Partnership interests & Character of Gain

Recently revised Form 8308 is required to be filed by partnerships for sales or exchanges of partnership interests when the partnership holds Section 751(a) hot assets. Hot assets are those that would be subject to ordinary tax rates rather than capital gains treatment when realized. These include inventory and unrealized receivables. The partnership is required to file Form 8308 with its timely filed tax return and issue copies of the form to transferors and transferees.

Recently, the Treasury and IRS issued Notice 2025-2 extending the 2024 reporting deadline for certain information on the Form 8308 (part IV described below) from the later of Jan. 31, 2025, or 30 days after the partnership is notified of the transfer, to the later of the due date or extended due date of the partnership return or 30 days after the partnership receives notification of the transfer. However, the extension is only valid if Parts I-III of Form 8308 are provided to the transferor and transferee by the original deadline and the complete Form 8308 is furnished to the same by the deadline outlined in the notice.

Part IV of Form 8308 requires reporting and categorizing the partnership and the partner's deemed gain or loss on the sale. The categories include (1) Section 751(a) gain (loss), (2) Section 1(h)(5) collectibles gain, and (3) unrecaptured Section 1250 gain.

The instructions state, "A penalty may be imposed for failing to file each Form 8308 when due, including extensions." Additional penalties apply to failure to provide Form 8308 to the transferor and transferee.

Listen as our panel of partnership experts explains the new reporting requirements of Form 8308 for specific sales or exchanges of partnership ownership.