Sect. 704(c): Contributions to Partnerships and LLCs

Whenever a partner contributes appreciated or depreciated property to an entity treated as a partnership for U.S. federal tax purposes, Section 704(c) applies. Section 704(c) operates to prevent the shifting of tax liabilities associated with built-in gains and losses among/between partners when a partner contributes property that has a fair market value different from the basis the partnership takes in the contributed property.

These rules are flexible by design but raise a host of complicated decisions for tax advisers. Advisers must consider Section 704(c) tax consequences when reviewing partnership agreements and preparing partnership returns to ensure that gain and loss are appropriately allocated.

Section 704(c) provides elective methods for allocations to address inequities in allocating gain or loss from appreciated or depreciated property--however, the anti-abuse rules found in Section 704(c) regulate these elections. Tax advisers must know the available elections and limitations to avoid costly tax consequences.

Listen as our panel of experienced tax practitioners provides a thorough and practical guide to the rules of Section 704(c) governing partners' contributions of appreciated or depreciated property.

1. Critical aspects of Section 704(c)
   1. Sharing of income, gain, loss, or deduction for property contributed must take account of variations between basis and fair market value at contribution
   2. The Treasury and IRS' broad authority to determine proper application of allocations
   3. Navigating complex questions about built-in gain or loss on property contributed to a partnership
   4. Book vs. tax basis
   5. The "Ceiling Rule"
2. Traditional, curative, and remedial allocation methods
3. Revaluations
4. Mixing bowl rules
5. Anti-abuse rules

The panel will review these and other key issues:

• Reviewing partnership agreements and other operating documents based on Section 704(c) considerations
• Making choices among the allocation method elections
• Whether and when revaluations are appropriate or required

Learning Objectives

After completing this course, you will be able to:

• Identify property contribution transactions that fall under the rules of Section 704(c)
• Distinguish the specific types of allocations allowed under Section 704(c)
• Select specific drafting language to preserve flexibility in operating documents

• 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 at mid-level within the organization, drafting complex partnership agreements and schedules, supervising other attorneys or tax advisers. Specific knowledge and understanding of partnership structure, operating agreements and liquidation, including partner capital accounts, allocation and distributions; familiarity with the economic effect test; safe-harbor and non-safe harbor partnership agreements according to IRC 704.

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).