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Admitting New Partners: Tax Consequences

Section 704(c) Allocations, Section 754 Step-Up Elections, Section 751 Hot Assets, Disguised Sales, Operating Agreement Provisions

Note: CLE credit is not offered on this program

A live 110-minute CPE webinar with interactive Q&A

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Friday, August 29, 2025

1:00pm-2:50pm EDT, 10:00am-11:50am PDT

Early Registration Discount Deadline, Friday, August 1, 2025

or call 1-800-926-7926
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This webinar will address key tax issues that arise with the admission of a new partner into a partnership. Our panel of seasoned flow-through entity experts will explain the application of relative IRC provisions, including Section 704(c) allocations, Section 754 step-up elections, "hot assets" under Section 751, and other matters.

Description

Incorporating a new partner into a partnership or LLC has significant underlying tax implications. Contributions of appreciated property can trigger special allocations under IRC Section 704(c). The regulations include three allocation methods for these built-in gains: traditional, traditional with curative allocations, and remedial. To further complicate matters, property is often contributed subject to debt. The debt may or may not exceed the fair market value of the property contributed, further complicating these allocations.

Partnerships with Section 751 "hot assets" must specially allocate ordinary income from these assets, which include accounts receivable, inventory, and depreciation recapture, to existing partners or members.

When a partnership interest is transferred to a new partner, the partnership may want to elect to step up the basis of appreciated assets under Section 754. This election also requires special allocations among the partners. Once made, the election applies to transfers made by the partnership in any subsequent years. Partnership tax advisers, partners, and members must thoroughly grasp the tax implications surrounding the admission of a new partner.

Listen as our panel of skilled partnership professionals points out the tax considerations of admitting new partners and members to partnerships and LLCs.

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Outline

  1. Tax consequences of new partner admissions: introduction
  2. Operating agreement provisions
  3. Section 704(c) allocations
  4. Section 754 basis step-up election
  5. Section 751 hot assets
  6. Disguised sales
  7. Equity vs. service partners
  8. Self-employment tax
  9. Other matters

Benefits

The panel will cover these and other key issues:

  • Special allocations for contributed property under Section 704(c)
  • Distributions of cash or property that trigger the disguised sale rules
  • Key provisions in the operating agreement impacting the admission of partners
  • The tax ramifications of Section 751 hot assets on the admission of new partners

Faculty

Gray, Thomas
Thomas Gray
Partner
Troutman Pepper Hamilton Sanders

With a background in both accounting and law, Mr. Gray focuses his practice on the tax aspects of corporate and...  |  Read More

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Early Discount (through 08/01/25)

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Early Discount (through 08/01/25)

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CPE On-Demand

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