Summary
Partnerships
IRC 754 elections affecting partnership asset basis are irrevocable without IRS permission, are permitted when an interest in the partnership is sold or distributed and should only be considered when significant benefit might accrue. Transactions between partners may result in gains or loses by the partners and positive or negative adjustments to the asset basis. An examination of the ramifications of an IRC 754 election is included.See the full content of this document
Extract
When to advise a Sec. 754 election.
Variety and Complexity of Transactions to Which Election Applies Require Careful Planning
Sec. 754 may permit an adjustment to asset basis when a partnership distributes property or when an interest in the partnership is sold or exchanged. For practitioners and their clients, the variety and complexity of the transactions to which the Sec. 754 election applies necessitate extensive and careful planning before they decide whether or not to elect. Once made, the election is binding for all subsequent transactions; revocation is possible only with IRS permission. The first category of transactions covered by a Sec. 754 election involves the sale or exchange of a partnership interest, resulting in an adjustment to the basis of partnership property for the transferee partner only.(1) The second category involves the distribution of partnership property, resulting in an adjustment to the basis of undistributed partnership property.(2) This article will review the situations in which a Sec. 754 election will affect the basis of partnership property, with an emphasis on the manner of allocating basis among assets and the advisability of making the election in various situations; discuss the effects of Sec. 754 on the basis of assets in partnership formations and terminations; and provide guidance on the use of the Sec. 754 election to maximize tax benefits at the entity or partner level. How to Make the Election The election under Sec. 754 is made by the partnership ...See the full content of this document
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