In this blog, we’re diving into an important update from the IRS that affects partnerships and their partners. We are talking about the new Form 7217. If you are a partner in a partnership and you receive only cash distributions and/or guaranteed payments from the partnership, you don’t need to worry about this form.
What Is Form 7217?
The IRS recently released this form as a draft document, officially titled “Partner’s Report of Property Distributed by a Partnership”. It is designed for partners to report the distribution of property they receive from a partnership. This form is applicable for the tax year 2024 and beyond.
If you receive property, then you must attach this form to your individual tax return for the year you received the distribution of property. That is because the IRS wants more information about how you determine your basis in the property.
You might need to file more than one form 7217. This is because the IRS requires a form for each date you received a distribution of property subject to section 732. Even in situations when distributions made on different dates are part of the same transaction.
IRC Section 732
Now, let’s talk about how Form 7217 relates to IRC Section 732. This section of the Internal revenue Code deals with the basis of distributed property other than money. Essentially, it outlines how the basis of property distributed by a partnership to a partner should be determined.
According to IRC Section 732, the basis of property distributed to a partner is generally the adjusted basis of the property to the partnership immediately before the distribution. However, there are specific rules for distributions in liquidation of a partner’s interest.
The rules regarding how to determine the basis of property received from a partnership are complicated. They depend on whether the distribution is a liquidating distribution, meaning that your interest in the partnership is entirely terminated or the distribution is a non-liquidating distribution.
The rules also vary depending on the type of property received and if the distribution is considered a deemed sale or not.
What Does This Mean For You?
In summary, the new Form 7217, is a critical tool for partners to report property distributions accurately.
The tax rules related to partnerships are intricate. It is always recommended to have a good tax advisor in these situations.
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Please note that this blog post is for informational purposes only and does not constitute tax, legal or accounting advice.