What is IRS Form 7217? Understanding Partner’s Report of Property Distributed by a Partnership

In December 2024, the Internal Revenue Service (IRS) introduced Form 7217, titled "Partner’s Report of Property Distributed by a Partnership." This new tax form applies to partnership distributions involving property, money, or marketable securities treated as money under section 731(c). Its primary purpose is to report the basis of the distributed property, including any necessary adjustments as mandated by sections 732(a)(2) or (b) of the Internal Revenue Code.

Who Needs to File Form 7217?

Any partner receiving a distributed property from a partnership is required to file Form 7217. This obligation applies regardless of whether there's a basis adjustment resulting from the distribution.

However, there are specific exceptions:

• Monetary Distributions: If the distribution consists solely of money or marketable securities treated as money under section 731(c), Form 7217 is not required.

• Service Payments: Distributions made as payments for services rendered, other than in the capacity of a partner under section 707(a)(1), do not necessitate filing this form.

• Disguised Sales: Transfers classified as disguised sales under section 707(a)(2)(B) are exempt from this reporting requirement.

If a partner receives multiple property distributions within the same tax year, even from the same transaction, they must file a separate Form 7217 for each date. This ensures accurate reporting of partnership distribution transactions and clear record-keeping for both the partner and the IRS.

When and How to File the Form 7217

Form 7217 should be attached to the partner's annual tax return for the tax year in which such property distribution was received. The filing deadline aligns with the due date of the tax return, including any granted extensions.

For tax years beginning in 2024 or later, the December 2024 version of Form 7217 should be used until a newer revision is issued. Partners should always check for updated filing requirements and draft instructions on the official IRS website.

What Information Are Required on Form 7217?

Section 3 introduces the technical requirements for Form 7217, which mandates detailed tax basis capital reporting for all distributions of property from a partnership.

The form is divided into two main parts:

Part I: Aggregate Basis of Distributed Property on Distribution Date

This section captures high-level transaction data:

1. Indicate whether the distribution was a complete liquidation of the partner’s interest or a non-liquidating distribution, as the tax treatment may differ.

2. Specify if any portion of the distribution is treated as a sale or exchange under section 751(b).

3. Provide the partnership's aggregate basis in the distributed property before the distribution, considering any adjustments under sections 732(d), 734(b), or 743(b). This includes reporting the basis of the partnership in each property and the partnership's aggregate basis in all distributed properties.

4. Report the adjusted basis of the partner’s interest immediately before distribution.

5. Detail any cash received, money distributed, or marketable securities received, along with any recognized gain.

This section ensures the basis shifting and basis adjustment rules are properly applied and clearly documented.

Part II: Allocation of Basis of Distributed Property

Here, the focus is on the property-by-property basis allocation:

1. When there are multiple properties distributed, the partner must allocate basis on a property by property basis, including any carryover basis from prior transactions.

2. Describe each distributed property and the partnership’s basis before the distribution.

3. List the partnership's basis in each property before distribution.

4. Indicate if any special basis adjustments apply under sections 732(d), 732(f), 734(b), or 743(b).

5. Provide the fair market value of each distributed property.

6. Report the partner's basis in each distributed property after properly applying section 732.

Proper basis allocation prevents discrepancies between the partnership’s aggregate basis and the partner’s adjusted basis, reducing the risk of compliance errors or IRS scrutiny.

Why Does Accurate Completion of Form 7217 Matter?

Accurate completion of Form 7217 ensures the proper application of basis rules and transparent reporting of property distribution transactions.

Errors in basis computation or fair market value reporting can affect both current and future tax years, especially when basis shifting transactions or related partner distributions are involved.

Tax professionals should:

• Maintain detailed records of all property distributed by a partnership

• Ensure aggregate basis calculations align with the partnership’s books

• Confirm basis adjustments follow IRS guidance

• Review the draft instructions for any updates on reporting requirements

  
  

Conclusion

Form 7217 reflects the IRS’s ongoing effort to tighten reporting on partnership distributions and improve transparency around basis shifting and capital reporting. Partners and tax professionals should ensure they’re using the correct form, applying basis allocation rules accurately, and keeping documentation that supports every basis adjustment.

For the latest or detailed information, including draft form updates and detailed instructions, visit the official IRS Form 7217 page or try out our Bizora Research assistant.

IRS Form 7217 FAQs

Here are some frequently asked questions on IRS form 7217:

What is IRS form 7217?

Form 7217, titled “Partner’s Report of Property Distributed by a Partnership,” is used by partners to report property distributions they receive from a partnership. It provides details such as the type of property distributed and any required basis adjustments under Internal Revenue Code sections 732(a)(2) or (b).

Is form 7217 required?

Yes. Any partner who receives a property distribution from a partnership must file Form 7217 with their individual income tax return. The only exceptions are when the distribution consists solely of money (or marketable securities treated as money under section 731(c)) or when it is a payment for services under section 707(a)(1).

What is the purpose of form 7217?

The purpose of Form 7217 is to help the IRS and the taxpayer accurately track the basis of property distributed from a partnership. It ensures that any necessary basis adjustments are reported correctly, preventing errors that could affect gain or loss calculations when the property is later sold or disposed of.

What is the deadline for filing form 7217?

Form 7217 should be filed along with the partner’s federal income tax return (Form 1040 or 1040-SR) for the year in which the property distribution occurred. This means it follows the same deadline as your individual tax return, typically April 15 or the next business day if it falls on a weekend or holiday.

Is form 7217 a new form?

Yes. The IRS introduced Form 7217 in December 2024. It was created to improve transparency and reporting accuracy for partnership property distributions starting with the 2024 tax year.