Understanding IRS Form 7217: 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 form is designed for partners who receive property distributions from partnerships, whether through non-liquidating or liquidating distributions. Its primary purpose is to report the basis of the distributed property, including any necessary basis 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 property distribution 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.

  
  

It's important to note that if a partner receives multiple property distributions on different dates within the same tax year, even if they're part of the same transaction, a separate Form 7217 must be filed for each distribution date.

When and How to File

Form 7217 should be attached to the partner's annual tax return for the tax year in which the 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.

Information Required on Form 7217

The form is divided into two main parts:

1. Part I: Aggregate Basis of Distributed Property on Distribution Date

   • Indicate whether the distribution was a complete liquidation of the partner's interest.

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

   • 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).

   • Report the adjusted basis of the partner's interest in the partnership immediately before the distribution.

   • Detail any cash or marketable securities received and calculate any recognized gain.

2. Part II: Allocation of Basis of Distributed Property

   • Describe each distributed property's details.

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

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

   • Provide the fair market value of each distributed property.

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

Accurate completion of Form 7217 is crucial, as it ensures proper reporting of property distributions and compliance with IRS regulations. Partners should maintain detailed records of all distributions and consult with tax professionals if uncertainties arise during the reporting process.

For the latest information and access to Form 7217 and its instructions, partners are encouraged to visit the official IRS website.