S.Amdt. 4478

The amendment, titled the Basis Shifting is a Ripoff Act, aims to change how taxes are handled during certain partnership distributions and transfers involving related parties. Its primary purpose is to limit "basis shifting" by requiring the recognition of gain in specific scenarios where partners are related persons.

Key Changes and Additions:

• Gain Recognition on Distributions: It adds rules requiring partners and partnerships to recognize gain on property distributions if they are part of an applicable partnership (where two or more partners are related persons).

• Rules for Transfers: It establishes special rules for the transfer of partnership interests between related parties, limiting the increase to the adjusted basis of partnership property.

• Small Business Exception: The amendment provides an exception for partnerships that meet a specific gross receipts test, meaning they would not be treated as an applicable partnership.

• Increased Penalties: It introduces a related-party partnership distribution understatement penalty, increasing the penalty rate from 20 percent to 40 percent for underpayments linked to these specific transactions.

• Effective Date: These changes are set to apply to distributions and transfers occurring after June 17, 2025.