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S2094119th CongressWALLET

Basis Shifting is a Rip-off Act

Sponsored By: Senator Wyden, Ron [D-OR]

Introduced

Summary

Tightens rules on basis-shifting in related-party partnership distributions. This bill would change when partners and partnerships recognize gain or loss on transfers and distributions between related parties and raise penalties for related-party understatement.

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  • Partners: Generally bars recognizing gain or loss on a distribution unless the money distributed exceeds the partner's adjusted basis immediately before the distribution. Any gain or loss that is recognized would be treated as gain or loss from the sale or exchange of the partner's partnership interest.
  • Partnerships: For related-party distributions that increase basis in distributed property the partnership would recognize gain equal to that basis increase and the distributed property's basis after the distribution would be increased accordingly.
  • Scope and enforcement: The bill defines "applicable partnerships," includes a small-business gross receipts exception, and creates a new 40% penalty for underpayments tied to related-party partnership distribution understatements. The rules would apply to distributions and transfers after June 11, 2025.

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Bill Overview

Analyzed Economic Effects

2 provisions identified: 0 benefits, 2 costs, 0 mixed.

Higher taxes for related-party transfers

If enacted, this bill would make many related-party partnership distributions and transfers create immediate taxable gain. Partners would generally recognize gain only when cash exceeds their basis, and losses would be limited to narrow liquidation cases. The bill would cap basis step-ups to the amount of gain recognized and require partnerships to recognize gain when distributions increase property basis. Small partnerships that meet a modified gross-receipts test would be excluded, but most family, tiered, and related partnerships would be covered. These rules would apply to distributions and transfers after June 11, 2025.

Higher penalty for related-party distributions

If enacted, the bill would add a new accuracy-related penalty for understatements tied to related-party partnership distributions. The penalty rate for the underpayment portion tied to those distributions would be 40 percent instead of 20 percent. This change would apply to distributions and transfers after June 11, 2025.

Sponsors & CoSponsors

Sponsor

Wyden, Ron [D-OR]

OR • D

Cosponsors

There are no cosponsors for this bill.

Roll Call Votes

No roll call votes available for this bill.

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