Transfers of partnership interests and related basis adjustments require increased reporting.

• Author: Lerman, Jerry L.

In December 1999, the IRS finalized regulations on adjustments following sales or exchanges of partnership interests occurring after Dec. 14, 1999. The regulations generally dealt with several extremely important partnership concepts, including: (1) optional basis adjustments following the transfer of partnership interests; (2) calculations of gain or loss under Sec. 751(a); and (3) allocation of basis among assets, both within the partnership under Sec. 755 and for properties distributed to partners under Sec. 732. More importantly, these same regulations imposed notification requirements on the recipient partner, as well as substantial additional reporting obligations on the partnership. Since the 2000 tax year is the first full year during which these provisions are applicable, it is extremely important that the returns reflect all of the pertinent information for all partnership transfers that occurred.

A review of a partnership's books and records, beginning in 2000 and each year thereafter, should focus on whether any such transfers have occurred. Moreover, the next step should be to determine whether notification was in accordance with the regulations and, if not, to advise the partnership to contact the transferee partner immediately to secure all of the pertinent information.

Notice

The specific obligations imposed on both the partnership and the transferee partner, when a Sec. 754 election is in effect or is desired, are as follows:

* When an interest is acquired by sale or exchange, any transferee partner is required, within 30 days of the transfer, to notify the partnership of the transfer in writing, signed under penalties of perjury, including the following information:

1. Transferee's name and address and, if available, the transferor's;

2. Transferee's taxpayer identification number (TIN) and, if available, the transferor's;

3. Relationship (if any) between the transferee and the transferor;

4. Transfer date;

5. Liabilities assumed or taken subject to by the transferee;

6. Amount of money or fair market value (FMV) of any other property delivered or to be delivered for the interest; and

7. Any other information needed by the partnership to compute basis.

* When an interest is acquired on a partner's death, a written statement under penalties of perjury must be submitted within one year of the date of death, containing similar information. It must provide not only the value at death, but also the manner in which the FMV was...