The IRS recently released a draft of Form 7217, “Partner’s Report of Property Distributed by a Partnership.” If finalized, this new form will subject partners who receive property distributions from partnerships to new filing requirements. Starting with 2024 tax filings, partners will use Form 7217 to report the tax basis in property distributed to them, along with details of any adjustments under Section 732. Partners previously were required to include similar information in their returns using non-standardized footnotes.
The draft form stems from the IRS’s push for increased transparency in partnership reporting. It builds on recent instructions from the 2023 Schedule K-1 (Box 19) and consolidates required information into a standardized document. While the form won’t necessarily increase the complexity of calculating a partner’s basis in distributed property, it requires reporting of data such as the partnership’s basis in the property before distribution, the fair market value of the distributed property and any adjustments to the partner’s basis under Sections 743(b) or 734(b).
Form 7217 also requests details about the distribution type, such as whether it represents a liquidation of the partner’s interest and if Section 751(b) applies. Each property distribution requires a separate Form 7217, ensuring precise reporting for partners with multiple distributions. By centralizing these requirements, the form aligns with the IRS’s ongoing efforts to capture detailed basis calculations, particularly in cases involving basis-shifting transactions among related parties.
Impact on Private Equity (PE) and Venture Capital (VC) Funds
The completion of the new Form 7217 represents an additional compliance burden on partners receiving property distributions. However, they will not be required to submit information beyond what they must include in their basis calculations. Partnerships are already required to provide certain information relevant to Form 7217 on Schedules K-1 and supporting statements, but partnerships are not required to report (and often do not know) a partner’s adjusted basis in his or her partnership interest. Additional disclosures should not be required by partnerships. Yet, PE and VC funds will likely see questions related to the completion of this form from some of their investors and should be prepared for appropriate responses.
Taxpayers should monitor any revisions as the IRS moves toward finalizing this draft, and partnerships will want to prepare for the partner’s added reporting requirements this form introduces.
For questions about how the new Form 7217 requirements may impact your partnership distributions, connect with one of our private equity professionals today.
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