This article discusses Notice 2025-23, issued by the Department of the Treasury (Treasury Department) and the Internal Revenue Service (IRS), which announces the intention to remove § 1.6011-18 of the Income Tax Regulations (26 CFR part 1), also known as the Basis Shifting Transaction of Interest (TOI) Regulations. This notice also provides immediate relief from certain penalties associated with these regulations and withdraws Notice 2024-54. Understanding the implications of this notice is crucial for tax practitioners advising clients involved in partnership-related party basis adjustment transactions.

Background and the Basis Shifting TOI Regulations

Notice 2025-23 indicates that effective January 14, 2025, the Basis Shifting TOI Regulations identified certain partnership related-party basis adjustment transactions and substantially similar transactions as transactions of interest. These regulations triggered disclosure obligations under § 6011 for participants and under § 6111 for material advisors. Material advisors were also required to maintain lists under § 6112.

However, the Treasury Department and the IRS state that taxpayers and their material advisors have criticized these regulations. The criticisms highlight that the regulations imposed complex, burdensome, and retroactive disclosure obligations on many ordinary-course and tax-compliant business activities, leading to costly compliance obligations and uncertainty.

Forthcoming Removal of § 1.6011-18

Section 1 of Notice 2025-23 explicitly states the intention of the Treasury Department and the IRS to publish a notice of proposed rulemaking (forthcoming NPRM) proposing to remove § 1.6011-18 from the Income Tax Regulations (26 CFR part 1). This decision follows a review process initiated pursuant to Executive Order 14219, issued on February 19, 2025, titled "Ensuring Lawful Governance and Implementing the President’s ‘Department of Government Efficiency’ Deregulatory Initiative". This executive order directed agencies to identify and remove certain regulations and other guidance.

The forthcoming NPRM will propose an applicability date that corresponds with the date of the issuance of Notice 2025-23, citing § 7805(b)(1)(C). Furthermore, the NPRM will propose that taxpayers and material advisors may choose to apply the final regulations retroactively to January 14, 2025, the original applicability date of the Basis Shifting TOI Regulations, as permitted under § 7805(b)(7). Importantly, Notice 2025-23 states that taxpayers and material advisors may rely on this notice until the forthcoming NPRM is finalized.

Waiver of Related Disclosure Statement Penalties

Recognizing the intended removal of the Basis Shifting TOI Regulations, the IRS is providing immediate relief from certain penalties.

Participant Penalty Waiver: The IRS will waive penalties under § 6707A(a) for any failure to file Form 8886, Reportable Transaction Disclosure Statement, that would otherwise be required due to the Basis Shifting TOI Regulations. This waiver is stated to be in the interest of sound tax administration.
Material Advisor Penalty Waiver: Similarly, the IRS will waive penalties under § 6707(a) for any failure to file Form 8918, Material Advisor Disclosure Statement, and will also waive penalties under § 6708 for any failure to maintain a list under § 6112, where such requirements arise solely from the Basis Shifting TOI Regulations. This waiver is also stated to be in the interest of sound tax administration.

Withdrawal of the Basis Shifting Notice (Notice 2024-54)

In addition to the intended removal of the regulations, Notice 2025-23 also announces the withdrawal of Notice 2024-54. Notice 2024-54, published in 2024-28 I.R.B. 24 (Basis Shifting Notice), had outlined the Treasury Department and the IRS’s intention to publish certain proposed regulations addressing partnership related-party basis shifting transactions.

The rationale for withdrawing Notice 2024-54 mirrors the concerns expressed regarding the Basis Shifting TOI Regulations. Stakeholders reportedly stated that the intended proposed regulations, if finalized, would impose complex, burdensome, and retroactive technical rules on many ordinary-course and tax-compliant business activities, creating costly compliance obligations and uncertainty for businesses. The withdrawal of this notice is also a result of the review directed by Executive Order 14219.

Impact on Affected Taxpayers and Material Advisors

The issuance of Notice 2025-23 provides significant relief to taxpayers and material advisors who were potentially subject to the disclosure requirements and associated penalties under the Basis Shifting TOI Regulations. The immediate waiver of penalties for non-disclosure offers certainty and alleviates the burden of complying with regulations that are now slated for removal.

The intended retroactive application of the final regulations removing § 1.6011-18, once the NPRM is finalized, further suggests that the Treasury Department and the IRS acknowledge the concerns raised regarding the initial implementation of these rules. Taxpayers and advisors can rely on Notice 2025-23 in the interim.

IRS Justification for Withdrawal

The IRS explicitly states that the waiver of penalties is in the interest of sound tax administration. This suggests a recognition that the criticized regulations and proposed rules in Notice 2024-54 were not effectively achieving their intended purpose without creating undue burden and complexity for taxpayers engaged in ordinary business activities. The decision to withdraw the regulations and the prior notice reflects a response to stakeholder feedback and the directives of Executive Order 14219 to reduce unnecessary regulatory burdens.

Conclusion

Notice 2025-23 signals a significant shift in the Treasury Department and the IRS’s approach to partnership related-party basis shifting transactions. The intended removal of the Basis Shifting TOI Regulations (§ 1.6011-18), the withdrawal of Notice 2024-54, and the immediate waiver of associated penalties offer welcome relief to affected taxpayers and material advisors. Tax practitioners should stay informed about the issuance of the forthcoming Notice of Proposed Rulemaking to fully understand the final implications of these developments. For further information regarding this notice, practitioners can contact the individuals listed in the Drafting Information section of the notice: Anthony Sacco, Jeremy Milton, and Elizabeth Zanet of the Office of the Associate Chief Counsel (Passthroughs, Trusts, and Estates).

Full text of the notice can be found at:

Notice 2025-23

Prepared with assistance from NotebookLM.