New Reporting Requirements for Distributions of Securities from Investment Partnerships

July 14th, 2025

•2 minute read

Key Takeaways

The IRS introduced new Form 7217 for tax years beginning in 2024, creating additional reporting requirements for partners receiving non-cash property distributions from partnerships.

Investors in private equity, venture capital, hedge funds, and fund-of-funds structures may need to file Form 7217 when receiving tax-free in-kind distributions of securities or other property.

The new reporting rules reflect increased IRS scrutiny of partnership transactions, basis adjustments, and basis-shifting activities, making accurate reporting and recordkeeping more important than ever.

The IRS has recently released Form 7217, “Partner’s Report of Property Distributed by a Partnership,” as well as the accompanying instructions, reflecting a new reporting requirement for partners in investment partnerships, among others, for tax years beginning in 2024 or later.

This new reporting requirement applies to any partner in any partnership that receives from the partnership distributions of property other than cash and marketable securities treated as cash. In the context of investment partnerships, it applies to investors in private equity, venture capital, and hedge funds that make in-kind distributions of securities or other property. In addition, funds of funds that receive such distributions will also need to prepare this form. This requirement could also come into play in the context of fund restructurings, such as the formation of continuation funds.

Tax-Free Distributions from Investment Partnerships

Investment partnerships that meet certain requirements can distribute marketable securities to partners on a tax-free basis. The recipient partner can defer income recognition until the securities are later sold. Other partnerships are required to treat marketable securities as cash, resulting in more immediate tax consequences.

Each partner receiving a tax-free distribution of property, including marketable securities from an investment partnership, is required to file the new Form 7217. A separate Form 7217 is required to be filed for each date during the tax year in which a distribution was received and will be attached to the recipient’s tax return. The information reported must include the basis of the distributed property and any required basis adjustments to such property.

Insights

This new filing requirement is part of the IRS’s increased scrutiny of partnerships and basis-shifting transactions. Fund managers should be prepared to receive additional requests from limited partners as they comply with Form 7217 reporting.

Frequently Asked Questions (FAQ’s)

Form 7217 is a new IRS reporting form required for partners who receive certain non-cash property distributions from partnerships beginning in tax years starting in 2024.

Partners receiving distributions of property other than cash or marketable securities treated as cash may need to file Form 7217 with their tax return.

Certain investment partnerships can distribute marketable securities on a tax-free basis, allowing partners to defer income recognition until the property is later sold.

The IRS introduced Form 7217 as part of increased enforcement and oversight related to partnership reporting, basis adjustments, and basis-shifting transactions.