Reverse Section 704(c) Layers: Partnership Revaluation Events

In general, IRC Section 704(c) layers can be created in two different contexts. First, a "forward" layer is created when built-in gain (or built-in loss) property is contributed to a partnership. A "reverse" layer is generally made in advance of a change in the economic arrangement between new or existing partners to memorialize the built-in gain or loss amongst the existing partners. These reverse layers ensure that partners do not inappropriately shift gain or loss allocations that economically belong to the historical partners.

The complexity of these calculations cannot be understated. Each revaluation event creates a separate layer and amount of built-in gain or loss that is allocated to specific partnership properties. These so-called book-ups are not mandatory but allow partners to recognize the built-in gain or loss over time. The tax regulations require partnerships to employ a reasonable method for these Section 704(c) allocations, including traditional, traditional with curative allocations, or the remedial method. The method chosen can have a material impact on how partners share in taxable income/loss and the partnership is permitted to utilize different methods for each layer. Tax practitioners working with partnerships need to understand the practical impacts of IRC Section 704(c) that occur as a result of revaluing the Section 704(b) capital accounts.

Listen as our panel examines common events triggering partnership revaluations and discuss how to maintain and report Section 704(c) layers. Our panel of partnership transaction experts will walk practitioners through common scenarios requiring book-ups and book-downs and offer advice on facilitating tracking each partners' share of Section 704(c).

1. Section 704: a primer
2. Reverse 704(c) revaluations
3. Reasonable allocation methods
   1. Traditional
   2. Curative
   3. Remedial
   4. Anti-abuse rules
4. Introduction to handling layers
5. Small disparities
6. Sale of partnership with revaluations
7. Examples

The panel will review these and other critical issues:

• Differences between traditional, traditional with curative, and remedial allocation methods
• When a partnership should choose to revalue partnership property under the Section 704(b) regulations
• An introduction to handling multiple layers of built-in gain (or built-in loss)
• Common scenarios involving reverse Section 704(c) allocations

Learning Objectives

After completing this course, you will be able to:

• Identify triggering events eligible for partnership revaluations under Section 704(c)
• Determine differences between forward and reverse allocations
• Decide when reverse 704(c) allocations could be beneficial
• Ascertain differences between remedial and traditional allocations

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite: Three years+ business or public firm experience preparing complex tax forms and schedules, supervising other preparers or accountants. Specific knowledge and understanding of pass-through taxation, including taxation of partnerships, S corporations and their respective partners and shareholders.

Strafford Publications, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of Accountancy have final authority on the acceptance of individual courses for CPE Credits. Complaints regarding registered sponsons may be submitted to NASBA through its website: www.nasbaregistry.org.

IRS Approved Provider

Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).