Partnership must delay sec. 734(b) adjustments until retiring partner recognizes gain or loss.

• Author: Savage, Richard
• Position: Brief Article

In Rev. Rul. 93-13, the IRS clarified that a partnership with a Sec. 754 election in effect must make Sec. 734(b) basis adjustments to partnership property to correspond in timing and amount with a retiring partner's recognition of gain or loss attributable to Sec. 736(b) payments.

When a retiring partner receives a payment in exchange for his interest in partnership property under Sec. 736(b), the payment is treated as a distribution by the partnership, and the partner's gain or loss is determined under Sec. 731. Sec. 736(b) payments could be made to a partner in a lump sum or in a series of payments. In general, when a series of payments is made, recognition of gain or loss is deferred until the payments exceed the partner's basis in the partnership interest or until the final payment is made. When the total amount of Sec. 736(b) payments to be made to a partner is fixed, however, the partner may determine the amount of gain or loss attributable to each payment by applying a ratable portion of his basis in the partnership interest to each payment.

Generally, the basis of partnership property is not adjusted when the partnership makes a distribution to a partner. If, however, the partnership has made a Sec. 754 election, the partnership property's basis is adjusted to reflect the gain or loss recognized by the distributee partner under Sec. 731.

Although the gain or loss a retiring partner will recognize can be determined when...