Navigating the New Era of Related-Party Transactions Reporting: Risks and Rewards for Investors

The landscape of corporate governance and tax compliance is undergoing a seismic shift, driven by heightened scrutiny of related-party transactions (RPTs). In 2025, regulatory bodies like the irs and SEC have introduced sweeping changes to reporting requirements, aiming to dismantle tax avoidance schemes and ensure transparency. For investors, these updates signal both risks and opportunities—requiring a sharp focus on how companies navigate these new rules.

The Regulatory Hammer Strikes Harder

The IRS’s 2025 reforms, finalized in January, have redefined the landscape for partnerships and their related-party dealings. Transactions of Interest (TOIs), including tax-free distributions and transfers involving related parties, now trigger mandatory reporting if they exceed $10 million (for tax years starting in 2025 or later). This threshold drops to $25 million for pre-2025 transactions, with a six-year lookback period requiring retroactive disclosures.

The goal? To curb basis-shifting schemes, where taxpayers artificially inflate asset values to defer taxes. IRS Commissioner Danny Werfel called these maneuvers a “shell game,” and the agency estimates the new rules could recoup $50 billion over a decade. For investors, this means heightened audit risks for companies involved in such transactions—particularly those with complex partnership structures.

The SEC’s Warning: A Case Study in Compliance Failure

The regulatory crackdown isn’t limited to the IRS. The SEC’s 2025 enforcement action against Shift4 Payments, Inc. underscores the penalties for non-compliance. The payment processing firm was fined $750,000 for omitting material transactions involving family members of executives in its 2020–2022 disclosures. Key violations included failing to report:
- $1.1 million annually paid to an executive’s sibling.
- $463,565 in 2022 commissions to a director’s stepchild.

Ask Aime: How will the IRS and SEC's reforms impact corporate governance and tax compliance in 2025?

These transactions breached SEC rules requiring disclosure of any RPT exceeding $120,000. Shift4’s stock dropped sharply after the penalty was announced, reflecting investor skepticism about governance practices.

The Technical Underpinnings: Why This Matters

Under Subchapter K of the IRC, partnerships must account for basis adjustments tied to distributions and transfers. The new thresholds act as tripwires for the IRS, flagging transactions that could mask untaxed gains. For example, a partner receiving a basis-inflated asset might avoid immediate tax liability, but the IRS now demands transparency to prevent such loopholes.

The six-year lookback period adds urgency. Companies must retroactively report prior transactions, creating compliance costs and potential liability for historical deals. Investors should scrutinize firms’ historical RPT disclosures and their capacity to manage these new reporting burdens.

Investment Implications: Due Diligence is Critical

For investors, the message is clear: RPTs are no longer low-risk backroom deals. Companies exposed to high-value related-party transactions—especially in industries like real estate, private equity, or family-controlled businesses—face amplified regulatory and reputational risks.

• Risk Factors to Watch:
• Proximity to the $10M/$25M thresholds.
• Historical RPT disclosures and audit history.

• Governance structures involving family ties or interlocking directorates.

• Opportunities in Transparency:
  Firms with robust compliance frameworks and clear disclosures may gain a competitive edge. Investors might favor companies like Blackstone (BX) or Kohlberg Kravis Roberts (KKR), which have established protocols for RPT reporting, over smaller players struggling with compliance.

Conclusion: Compliance is the New Alpha

The 2025 regulatory overhaul marks a turning point for investors. With penalties like Shift4’s $750,000 fine and the IRS’s $50 billion revenue target, non-compliance is a multi-million-dollar liability. Companies that proactively address RPT transparency—through updated policies, enhanced disclosures, and third-party audits—are likely to weather scrutiny better.

Conversely, firms with opaque governance or a history of RPT shortcuts face reputational and financial fallout. Investors should prioritize companies with clean records, while using tools like the IRS’s TOI disclosures and SEC filings to assess risk. In this new era, compliance isn’t just a legal obligation—it’s a cornerstone of long-term value creation.