Effective May 13, 2026, Treasury finalized Reg. §1.6050K-1(c)(1), which had been proposed on August 19, 2025. In essence, what the new regulation does is eliminate the January 31st deadline to file a completed Form 8308 to report a sale of a partnership interest that occurred in the immediately preceding calendar year, if there was a §751(a) hot asset “exchange.” Instead, the partnership can file a partially completed Form 8308 (i.e., parts I-III), which contains identifying information of the transferor and transferee as well as the date of transfer; however, Part IV, which contains the relevant hot asset information, does not have to be filed until the due date of the partnership’s return, including extensions.

One does not glean the above deadlines from the language in the regulation itself, rather, the regulation provides that the taxpayer should follow the instructions to Form 8308, which contain the filing deadlines. There is nothing controversial about this regulatory change, as it is pro-taxpayer (at least from the partnership’s perspective) and responds to a common complaint from many tax professionals about not having sufficient time to obtain and compute the required §751 information. In fact, the IRS had been providing this extension for the last few years via administrative guidance.

However, the announcement of finalization of the regulatory change is a reminder to taxpayers about the importance of focusing on the amount of hot asset income (or loss) that is going to be reported by a partnership when there is a sale of a partnership interest (even though the partnership is not a party to the sale transaction). Not only is the partnership required to report the amount of hot asset income (or loss) to the IRS via Form 8308, but the partnership also is required to report the same information on the selling partner’s K-1. A partner disagreeing with the partnership’s K-1 reporting would need to file a Form 8082 (“Notice of Inconsistent Treatment or Administrative Adjustment Request (AAR)”), which could greatly increase the chances of an IRS examination. Consequently, in most circumstances, it is advisable that the buyer and seller agree on the amount of hot asset income (or loss) that will be reported in connection with the sale transaction. While the partnership is not necessarily bound by this agreement, it would be a highly unusual circumstance for the partnership not to follow the agreement of the buyer and the seller.

The general operation of the §751 hot asset rules is always covered at our Fundamentals of Flow-Through® programs, and more advanced §751 issues are part of the materials for our Tax Planning Forum®. Registration remains open for our last spring Fundamentals program on June 23-25, as well as for all our fall/winter Fundamentals and Forum programs. Register early to reserve your spot, including for our fall in-person programs in Las Vegas and Orlando for which space is limited.