IRC 704(c) for Tax Counsel: Structuring Partnership Agreements for Contributions of Built-In Gain or Loss Property
Avoiding 704(c) and 737 Gain or Loss Shifting Pitfalls, Navigating Complex Basis Adjustment Rules
Recording of a 90-minute premium CLE/CPE webinar with Q&A
This CLE/CPE webinar will provide tax counsel and advisers with a comprehensive and practical guide to navigating the complex requirements of IRC Section 704(c) in structuring partnership agreements. The panel will offer practical drafting tools, including sample language, for ensuring that partnership operating documents meet the allocation provisions for property with built-in gains or losses.
Outline
- Key aspects of Sect. 704(c)
- Applies whenever a partner contributes appreciated or depreciated property to a partnership, or when a new partner is admitted
- Income, gain, loss or deduction for property contributed must be shared among partners
- Parties must account for any variance between basis of property and fair market value at time of contribution over the life of the partnership
- If property is depreciable or subject to depletion, then taxpayers are granted broad authority to determine how to account for this variance over the life of the partnership
- Simple Traditional Method Example
- Ceiling Rule Limit
- Simple Traditional with Curatives Example
- Simple Remedial Example
- Forward and reverse allocations under Sect. 704(c)
- Elections available to choose allocation method
- Forward allocations
- Book vs. tax basis
- Traditional, curative, remedial methods
- Reverse allocations
- Issues with revaluation of capital accounts
- Aggregation elections
- Structuring and drafting partnership operating documents to conform to Section 704(c) rules
- Timing of Making Forward 704(c) Election and Possible State law issues
- Should you select a method in the agreement upon inception?
- Should you give someone (manager, BOD, etc.) power to select a method later?
- State law breach of fiduciary duties issues with “2”
- Timing of Making Reverse Section 704(c) Election and Possible State law issues
- Should you elect to revalue?
- Should you grant someone (manager, BOD, etc.) the power to elect to revalue later?
- Do the regulations allow the drafter to grant someone the power to elect to revalue at later time (or must the drafter either elect to revalue or not at the time of inception)?
- Timing of Making Forward 704(c) Election and Possible State law issues
Benefits
The panel will discuss these and other important topics:
- Preparing partnership and operating agreements with specific language to conform with Sect. 704(c) allocation restrictions
- Identifying various elections to adopt an appropriate allocation method
- What are the specific events and conditions under which a reverse revaluation is allowed under Section 704(c)
- Understanding reverse 704(c) revaluations in the context of partnership termination/reformation
Faculty

Lynn E. Fowler
Partner
Kilpatrick Townsend & Stockton
Mr. Fowler's practice specializes in tax-efficient strategies for a variety of business entity formation,... | Read More
Mr. Fowler's practice specializes in tax-efficient strategies for a variety of business entity formation, financing, operations and disposition transactions. He has worked with clients frequently on federal income tax credits, and taxable and tax-free M&A transactions.
Close
Professor Noel P. Brock
Assistant Professor
Eastern Michigan University
Mr. Brock is an assistant professor at Eastern Michigan University, where he teaches and researches in the... | Read More
Mr. Brock is an assistant professor at Eastern Michigan University, where he teaches and researches in the area of tax law with an emphasis on transactional tax including partnership, corporate, financial products and international taxation. He is also Of Counsel for Steptoe & Johnson, where he focuses his practice in the area of transactional tax in support of energy, corporate service, banking, real estate, and financial services. He is a CPA and has published on targeted tax allocations.
Close