Form 8308: A Small IRS Form with Big Consequences for Investors

Form 8308 is an IRS reporting form that partnerships use when a partner sells, or exchanges all or part of a partnership interest and any of the consideration is attributable to “hot assets” under IRS Section 751(a).​ Since many real estate investors hold assets through LLCs taxed as partnerships, this form can surface unexpectedly during exits, partner buyouts, or secondary transfers, and mistakes can trigger penalties and mismatched tax reporting.​

This guide explains what Form 8308 is, when it applies, why it matters to investors, and what can go wrong if it is late, incomplete, or inconsistent, and how a CPA for real estate investors can help align partnership reporting, K-1 disclosures, and the seller’s return positions before the transaction closes.

Form 8308 at a Glance

What Is It?

The IRS states that Form 8308 is filed by a partnership to report a sale or exchange of a partner’s interest when money or other property received is attributable to unrealized receivables or inventory items, i.e., a Section 751(a) exchange.​

In practical terms, it is a “forewarning” form that a portion of what many investors assume is capital gain may actually be ordinary income.​

Who Files It?

A partnership must file a separate Form 8308 for each Section 751(a) exchange involving an interest in that partnership.​ Form 8308 generally is a partnership-level obligation, even though the consequences flow directly to the transferor partner’s tax reporting.​

When It Is Not Required?

The IRS instructions note that Form 8308 does not have to be filed if Form 1099-B is required under Section 6045 for the sale or exchange.​

This exception can apply in broker-reported transactions, but it should not be assumed without confirming the specific facts and reporting channel.​

Why Should Real Estate Investors Care ?

Real estate partnerships often hold assets that can create ordinary-income recharacterization under the Section 751 framework, so the sale of an LLC/partnership interest is not always “pure” capital gain in the way many investors expect.​

The instructions emphasize that Form 8308 alerts transferors that they may be required to treat part of the gain from a Section 751(a) exchange as ordinary income.​

This matters for investors because ordinary income can be taxed at higher rates than long-term capital gains, changing after-tax proceeds and estimated tax planning.​

If an investor is working with a real estate tax accountant on an exit, Form 8308 is one of the items that should be explicitly confirmed during the transaction timeline.

A real estate tax advisor can also help evaluate whether the economics of a buyout should be adjusted if ordinary-income “hot asset” amounts are expected to be significant.​

When Is Form 8308 Triggered?

A partnership must file Form 8308 once it has “notice” of a Section 751(a) exchange.​

The IRS explains that the partnership has notice when it receives written notification from the transferor with key transaction details, or when it otherwise has knowledge that a transfer occurred at a time the partnership had unrealized receivables or inventory items.​

This “notice” concept is important because the partnership’s filing and furnishing timelines run from the exchange and/or the partnership becoming aware of it.​

In real estate, transfers can occur through membership interest assignments, entity restructurings, or partial redemptions, so operational teams should ensure tax teams are informed promptly.

Deadlines and Delivery Requirements

Filing with the Partnership Return

According to the IRS, Form 8308 is generally filed as an attachment to Form 1065 for the partnership tax year that includes the last day of the calendar year in which the Section 751(a) exchange took place, and it is due when the partnership return is due (including extensions).​

This means the form is often finalized on the partnership’s tax return timetable rather than on the closing date timetable, which can surprise sellers who want final numbers immediately.​

Furnishing Copies to Transferor and Transferee

All partnerships required to file Form 8308 must furnish a copy to each transferor and transferee by January 31 of the year following the calendar year of the exchange, or (if later) within 30 days after the partnership has notice of the exchange.​

The latest IRS instructions also clarify that partnerships are no longer required to furnish Part IV information by January 31; they still must furnish the information in Parts I–III by that deadline, while the complete Form 8308 (Parts I–IV) must be filed with Form 1065.

For investors, this split creates a common confusion: receiving a “partial” Form 8308 (Parts I–III) does not necessarily mean the partnership failed to complete the full filing, because the full Parts I–IV package is tied to the Form 1065 filing.​

What Information Can the Form Signal? (Part IV: The Big Tax Implications)

The IRS describes Part IV as the section used to report categories that may be taxed at higher rates than typical long-term capital gain treatment.​

Specifically, Part IV covers Section 751(a) hot assets gain/loss (unrealized receivables and inventory items), collectibles gain under Section 1(h)(5), and unrecaptured Section 1250 gain under Section 1(h)(6).​

For real estate investors, unrecaptured Section 1250 gain is especially relevant because depreciation can create a special rate bucket on disposition, and partnership-level computations can affect what is ultimately reported to the selling partner.​

This is one reason many investors rely on a real estate CPA to reconcile sales documentation, partnership tax capital, depreciation history, and the final K-1 package.

Consequences of Mistakes in Form 8308

IRS Penalties for the Partnership

The IRS instructions state that penalties may be imposed for failing to file a correct Form 8308 by the due date (including extensions), for missing required information, or for furnishing incorrect information.​

They also state penalties may be waived for reasonable cause (not willful neglect), and increased penalties may apply when there is intentional disregard of the requirement to report correct information.​

In addition to filing penalties, the IRS explains a separate penalty may apply for failure to furnish a correct Form 8308 to either party to the exchange when due (or for furnishing incorrect/incomplete information).​​

Investor-Level Consequences

Even when the partnership bears penalties, investors can face practical fallout:

• Delayed filing because the investor is waiting on missing or corrected information that affects ordinary income vs. capital gain characterization.​
• Amended returns or administrative adjustment processes if partnership reporting changes after original issuance.​
• Increased audit risk if the investor reports one characterization but the partnership’s final reporting supports another.​

The IRS instructions also indicate that if a partner receives a Form 8308 that is not consistent with the partnership’s Schedule K-1 reporting, the partner should use the information on Schedule K-1 and request a revised Form 8308.​

That guidance highlights a key best practice: treat K-1 reporting as the controlling partnership reporting document when a mismatch occurs, and immediately initiate correction workflows.​

Form 8308 Compliance Checklist (Practical Steps)

Use this checklist to reduce last-minute issues and avoid preventable inconsistencies:

• Confirm entity classification (partnership vs. corporation) early in the transaction.
• Determine whether the transfer is a Section 751(a) exchange (i.e., whether the partnership has unrealized receivables or inventory items that make the transfer attributable to “hot assets”).​
• Provide prompt written notice of the transfer to the partnership with the required details so the partnership can meet its obligations.​
• Calendar the furnishing deadline (generally January 31 following the exchange year, or 30 days after the partnership has notice, if later).​
• Confirm the partnership will file Form 8308 with Form 1065 by the return due date (including extensions).​
• Reconcile the investor’s sale reporting to the final K-1 package, especially if ordinary-income components are present.​
• If there is any mismatch, request corrections immediately and document the final support used for filing.​

At this stage, coordination between the deal team and an accountant for real estate investors typically prevents the most common errors: late furnishing, missing identifiers, and K-1/Form 8308 inconsistencies.

If the investor has multiple properties and entities, bundling these reviews into real estate tax preparation services can also reduce year-end surprises.

To reduce risk, consider scheduling a pre-filing review with a CPA for real estate investors before the partnership issues final K-1s, especially in partial transfers, tiered partnership structures, or transactions involving depreciation-heavy property.

Conclusion

Form 8308 can turn an LLC interest exit into a tax surprise when Section 751 “hot assets” recharacterize capital gain as ordinary income. Partnerships must furnish Parts I–III to both parties by January 31 and file the full form with Form 1065, so timing and consistency matter. Engage a CPA early to align deal documents, K-1s, and avoid the serious penalties that may come otherwise.
If you are looking for a reliable and trusted CPA for real estate investors, check out GavTax Advisory Services for proper guidance. Check their website and schedule an appointment today!

FAQs

What is IRS Form 8308 used for?

Form 8308 is used by a partnership to report the sale or exchange of a partner’s interest when the consideration is attributable to Section 751(a) “hot assets” such as unrealized receivables or inventory items.​

Who is responsible for filing Form 8308?

A partnership must file a separate Form 8308 for each Section 751(a) exchange involving an interest in that partnership, generally as an attachment to Form 1065.​

When does the partnership have to furnish Form 8308 to the buyer and seller?

Partnerships required to file Form 8308 must furnish a copy to the transferor and transferee by January 31 of the year following the exchange year, or (if later) within 30 days after the partnership has notice of the exchange.​

Does the partnership have to give investors Part IV by January 31?

IRS instructions explain that partnerships are no longer required to furnish Part IV information by January 31, but they still must furnish Parts I–III by that deadline, and must file the complete Form 8308 (Parts I–IV) with Form 1065.​

What happens if Form 8308 and the Schedule K-1 do not match?

The IRS instructions say that if a partner receives a Form 8308 that is not consistent with the partnership’s Schedule K-1 reporting, the partner should use the Schedule K-1 information and request a revised Form 8308 if the partnership did not provide it.