Key Components

Unrealized Receivables

Unrealized receivables (to the extent not previously includible in income under the partnership's accounting method) include any rights to payment for:

• Goods delivered or to be delivered, to the extent that the payment would be treated as received for property other than a capital asset
• Services rendered or to be rendered

Inventory Items

Items defined under section 751(d).

---

Partner Notification Requirements

When a Section 751(a) Exchange Occurs

A partner who engages in a section 751(a) exchange must provide written notice to the partnership within 30 days of the exchange (or by January 31 of the calendar year in which the exchange occurred).

Required Information in the Notice

The written notice must include:

• Names and addresses of both parties to the exchange
• Identifying numbers of the transferor and (if known) the transferee
• The exchange date

Exception

An exception is made for sales or exchanges of publicly traded partnership interests for which a broker is required to file Form 1099-B (Proceeds From Broker and Barter Exchange Transactions).

Penalty for Failure to Notify

If a partner is required to notify the partnership of a section 751(a) exchange but fails to do so, the partner will be subject to a penalty for each such failure. However, no penalty will be imposed if the partner can show that the failure was due to reasonable cause and not willful neglect.

---

Partnership Reporting Requirements

Form 8308 Filing

A partnership must file a separate Form 8308 (Report of a Sale or Exchange of Certain Partnership Interests) for each section 751(a) exchange of an interest in the partnership.

Form 8308 is not required if, under section 6045, Form 1099-B is required to be filed with respect to the sale or exchange.

When the Partnership Has Notice

The partnership must file Form 8308 once it has notice of the section 751(a) exchange. The partnership has such notice when either of the following occurs:

1. The partnership receives written notification of the exchange from the transferor that includes the names and addresses of both parties, the identifying numbers of the transferor and (if known) the transferee, and the date of the exchange.

2. The partnership has knowledge that there has been a transfer of a partnership interest and, at the time of the transfer, the partnership had any unrealized receivables or inventory items.

When to File Form 8308

Generally, file the completed Form 8308 (Parts I through IV) as an attachment to Form 1065 for the tax year of the partnership that includes the last day of the calendar year in which the section 751(a) exchange took place. Form 8308 is due at the time for filing the partnership return, including extensions.

Reliance on Transferor Statement

A partnership may rely on a written statement from the transferor that the transfer wasn't a section 751(a) exchange unless the partnership has knowledge to the contrary. If a partnership is in doubt whether partnership property constitutes unrealized receivables or inventory items or whether a transfer constitutes a section 751(a) exchange, the partnership may file Form 8308 to avoid the risk of incurring a penalty for failure to file.

---

Tax Implications for Partners

Gain or Loss Reporting

Gain or loss from the disposition of a partnership interest may be net investment income (NII) under section 1411 and could be subject to the net investment income tax (NIIT). See Form 8960 (Net Investment Income Tax—Individuals, Estates, and Trusts) and its instructions for information about how to report and figure the tax due.

Information Required on Form 8308

The partnership must provide the following information on Form 8308:

• The date of the sale or exchange
• The amount of any gain or loss attributable to the section 751(a) property
• The amount of any gain or loss attributable to capital gain or loss on the sale of the partnership interest

---