IRC 732(d) Partnership and LLC Basis Adjustments for Tax Counsel

Determining the tax consequences of the distribution of property by a partnership to a partner is a constant challenge for tax counsel and advisers. Section 754 provides an election allowing a partnership to adjust the basis of its assets when the partnership either distributes property or a partner transfers an interest in the partnership. However, there are instances where partners must make basis adjustments in the distributed property even absent a Section 754 election. This is where the basis rules of Section 732(d) come into play.

Section 732(d) applies when a partnership that has not made a 754 election distributes property to a partner who would be entitled to make a positive 743(b) adjustment to that property if a 754 election were in place. In distributions where Section 732(d) is applicable, the distributed property receives a basis adjustment as if the 743(b) adjustment were in effect.

Section 732(d) and its regulations provide for elective or mandatory basis adjustment, depending on the circumstances. However, the rules can be complex, and the IRS has the option of challenging the adjustment decision on a facts and circumstances basis.

Listen as our experienced panel provides thorough and practical guidance to navigating the basis rules of Section 732(d) in distribution scenarios where a Section 754 election is absent. The webinar will provide tax counsel with valuable tools for structuring operating agreements and distribution provisions to avoid costly tax consequences.