What Every CPA Should Know About IRC Section 754 Elections: An Intermediate Examination of Key Principles and Applications, Including Selected Case Studies Adapted from the Regulations

When a partnership interest is transferred by sale, inheritance or exchange (but not gift) (IRC section 743 transactions), there will normally be a difference between the value of the partnership interest and the transferee’s share of the partnership’s inside basis in its assets. In addition there are four circumstances relating to distributions from partnerships (gain, loss, increase in basis and/or decrease in basis) (IRC section 734 transactions) that will also create an imbalance between the inside and outside basis of transferred property. IRC section 754 contains an election that allows a partnership to adjust the basis of its assets in order to compensate for these differences.

This presentation will review:

• Basic definitions of IRC sections 734 and 743 adjustments
• Impact of these adjustments on the transferee and/or the remaining partners
• Selected examples of calculations from the regulations
• Mandatory basis adjustments where no IRC section 754 election is in effect
• Office management issues and observations regarding IRC section 754 elections