What is IRC section 754 election?
Benefit of the Election An IRC Section 754 election allows a partnership to adjust the basis of the property within a partnership under IRC Sections 734(b) and 743(b) when one of two triggering events occur: 1) a distribution of partnership property or 2) certain transfers of a partnership interest.
What is a 754 deduction?
Under Section 754, a partnership may elect to adjust the basis of partnership property when property is distributed or when a partnership interest is transferred. The purpose of a Section 754 election is to reconcile a new partner’s outside and inside basis in the partnership.
Can a partnership file for late relief under IRC section 754?
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If the partnership fails to make the election, it can file for late relief under Treasury Regulation Section 301.9100-2, which is an automatic 12-month extension for IRC Section 754 elections. If more than 12 months have passed, late relief can still be requested but must be approved by the Commissioner.
What do you need to know about section 754?
Certain transactions or events during the life of a partnership can result in divergence between the inside and outside basis, and this can result in incongruent tax treatment. At a high level, the purpose of the Section 754 election is to align inside and outside basis to avoid these scenarios.
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What do you need to know about IRC section 755?
The regulations under IRC Section 755 provide guidance regarding how to allocate the basis adjustment. There are three scenarios described in the regulations: Section 743 (b) adjustment with non-substitute basis (i.e. sale or exchange or transfer by death)
How is the basis reduction allocated in section 754?
Thus, the adjustment is first allocated to property held by the partnership of like character (capital gain property or ordinary income property), then the adjustment is allocated within the class of property according to unrealized appreciation or depreciation. However, an allocation of basis reduction cannot reduce a property’s basis below zero.
