Basis Shifting is a Rip-off Act

This bill, titled the Basis Shifting is a Rip-off Act, seeks to curb what it calls basis-shifting transactions among related parties in partnership tax arrangements. It changes how gains are recognized and how basis is, in effect, shifted when a partnership distributes property to a partner or when partnership interests are transferred between related parties. The core idea is to prevent or lessen tax advantages from related-party distributions and transfers by forcing gain recognition and mandating basis adjustments in related circumstances. It also tightens penalties for understatements tied to these related-party transactions and creates an “applicable partnership” concept to identify which partnerships are subject to the new rules. The act includes a small-business safe harbor to exclude certain small partnerships from the related-party rules. The changes apply to distributions and transfers occurring after June 11, 2025. In practical terms, if you are in a partnership and you or another partner are related (as defined in the bill), certain distributions of property and transfers of partnership interests could trigger immediate gain recognition for the partnership or the partner, with corresponding basis adjustments to other partnership property. The bill also heightens penalties for understatement related to these transactions, making such understatements more costly to taxpayers. The intent is to reduce tax planning through artificial basis shifts among related parties.