The optional basis adjustment election is an attempt to allow partners to correct certain discrepancies by affecting a transferee’s allocable basis in the underlying partnership assets.
This article discusses developments in income allocations, disguised sales, partnership distributions, terminations, and basis adjustments.
It is not uncommon for a partnership to attempt to make a valid Sec. 754 election, only to find that it failed to satisfy regulatory requirements.
Identifying What Constitutes Partnership Liabilities and How They Affect the Basis of Partnership Assets
Only partnership debt that has an impact on the partnership's inside basis is a liability. All other debt is excluded from consideration.
Under Sec. 704(d), a member's allocable share of loss from a limited liability company (LLC) taxed as a partnership is deductible only to the extent of the member's outside basis in his or her LLC interest at the end of the LLC year. In determining a member's outside basis at year end, adjustments for increases and decreases are made in a specific order according to Regs. Sec. 1.704-1(d)(2).
The IRS issued proposed regulations providing guidance on the application of Sec. 704(c)(1)(C) added by the American Jobs Creation Act and the amendments to the mandatory basis adjustment rules of Sec. 743 in the AJCA.
A partnership making an optional Sec. 754 basis adjustment for land subject to a long-term ground lease is permitted to adjust the basis of the land but may not allocate the basis adjustment to buildings or other depreciable assets the lessee constructed.
A taxpayer’s basis is often scrutinized by the IRS, particularly when basis is claimed based upon debts incurred by a flowthrough entity.
This article reviews and analyzes recent rulings and decisions involving partnerships. The discussion covers developments in partnership formation, income allocations, and basis adjustments.
This article reviews and analyzes recent rulings and decisions involving partnerships.