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 CLE/CPE webinar with Q&A

Conducted on Tuesday, January 24, 2017
Recorded event now available

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.


An often difficult and frequently overlooked challenge for tax counsel and partnership advisers is negotiating the Section 704(c) contribution rules. Section 704(c) operates to prevent the shifting of tax liabilities associated with built in gains and losses among/between partners when a partner or member contributes property that has a fair market value different from the basis the partnership would take in the contributed property. Tax counsel must ensure that partnership agreements and contribution structures consider the provisions of Section 704(c) to avoid costly tax consequences.

The key provision to Section 704(c) requires contributing partners to recognize gain or loss on the partnership sale of built-in gain/loss property within seven years of the contribution. Section 704(c)(1)(B) works in tandem with Section 737, which requires recognition of precontribution gain by a contributing partner in case of certain distributions. The goals of the Sections are to prevent contributing partners from shifting built-in gains to another partner.

Tax counsel must not only understand the rules but also the practical implications of Section 704(c) in negotiating and drafting partnership agreements. Failure to take the anti-abuse rules into account when structuring contributions result in unnecessary tax issues for the individual partners.

Listen as our authoritative panel of tax advisers guides counsel through the basis adjustment rules, discusses the impact of the Section 754 election on individual partners and the partnership, and provides best practices for avoiding potential pitfalls of the election.


  1. Key aspects of Sect. 704(c)
    1. Applies whenever a partner contributes appreciated or depreciated property to a partnership, or when a new partner is admitted
    2. Income, gain, loss or deduction for property contributed must be shared among partners
    3. Parties must account for any variance between basis of property and fair market value at time of contribution over the life of the partnership
    4. 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
    5. Simple Traditional Method Example
    6. Ceiling Rule Limit
    7. Simple Traditional with Curatives Example
    8. Simple Remedial Example
  2. Forward and reverse allocations under Sect. 704(c)
    1. Elections available to choose allocation method
    2. Forward allocations
      1. Book vs. tax basis
      2. Traditional, curative, remedial methods
    3. Reverse allocations
      1. Issues with revaluation of capital accounts
      2. Aggregation elections
  3. Structuring and drafting partnership operating documents to conform to Section 704(c) rules
    1. Timing of Making Forward 704(c) Election and Possible State law issues
      1. Should you select a method in the agreement upon inception?
      2. Should you give someone (manager, BOD, etc.) power to select a method later?
      3. State law breach of fiduciary duties issues with “2”
    2. Timing of Making Reverse Section 704(c) Election and Possible State law issues
      1. Should you elect to revalue?
      2. Should you grant someone (manager, BOD, etc.) the power to elect to revalue later?
      3. 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)?


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

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)
  • Determine available elections to determine when an allocation method permitted by Section 704(c) is appropriate
  • Select specific drafting language to preserve flexibility in operating documents while conforming with 704(c) anti-abuse provisions
  • Recognize issues with capital account revaluations in reverse allocations


Lynn E. Fowler, Partner
Kilpatrick Townsend & Stockton, Atlanta

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.

Noel P. Brock, Assistant Professor
Eastern Michigan University, Ypsilanti, Mich.

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.

EA Credit

Enrolled Agent credit processing is available for an additional fee per person.

EA Processing $5.00


CLE On-Demand - Streaming Video

Note: Self-study CPE and EA credits are not offered on this On-Demand webinar.

Includes recorded streaming video of full program plus PDF handouts.

On-demand is the only recorded format recognized for CLE credits in DE, IN, KS, LA, MS, NC, OH, OK, SC, TN, VA, WI.

AK, AZ, CA, CO, CT, DE, FL, GA, HI, IA, ID, IL, IN*, KS, KY, LA, ME, MN, MO, MT, NC, ND, NH**, NJ, NM, NV, NY, OH*, OK, OR, PA, SC, TN, TX, UT, VA, VT, WA, WI, WV, WY (Note: Some states restrict CLE eligibility based on the age of a program. Refer to our state CLE Map for additional information.)

*Only available for attorneys admitted for more than two years. For OH CLE credits, only programs recorded within the current calendar year are eligible - contact the CLE department for verification.

**NH attendees must self-determine if a program is eligible for credit and self-report their attendance.

CLE On-Demand Video $297.00

How does this work?

Recorded Event

Includes full event recording plus handouts.

Note: Self-study CPE and EA credits are not offered on recorded events.

Strafford is an approved provider and self-study CLE credit is available in most states.

AK, AZ, CA, CO, CT, FL, GA, HI, IA, ID, IL, KY, ME, MN, MO, MT, ND, NJ, NM, NY, OR, PA, TN, TX, UT, VT, WA, WV, WY (Note: Some states restrict CLE eligibility based on the age of a program. Refer to our state CLE Map for additional information.)

Strafford will process CLE credit for one person on each recording.

Additional copies of a recording can be purchased at a discount. Please call Strafford Customer Service toll-free at 1-800-926-7926 ext 10 or email to place your order.

Recorded Webinar Download $297.00

How does this work?

Recorded Audio Download (MP3) $297.00

How does this work?


National Registry of CPE Sponsors

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 credit. Complaints regarding registered sponsors may be submitted to the National Registry of CPE Sponsors through its website:

IRS Approved Provider

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

Program Materials

Requires Adobe Reader 8 or later. Download Acrobat FREE.

Program Materials

Requires Adobe Reader 8 or later. Download Acrobat FREE.

or call 1-800-926-7926

CLE Credits

Many states grant CLE credits for on-demand streaming audio programs and recorded events. Our programs are pre-approved in many states. Refer to our state CLE map for state-specific information.

or call 1-800-926-7926

CPE Credit

Strafford is a NASBA CPE sponsor and our live webinars qualify for CPE credits. They offer you a high quality, cost effective, and convenient CPE option, with no lost travel time or expenses.

or call 1-800-926-7926

Customer Reviews

The presenters were knowledgeable and able to intelligently answer questions.

Tommy Orr

Mikunda, Cottrell & Co.

Strafford’s program provided useful planning tips.

Randall Gibson

Stoll Keenon Ogden

Concise and accurate presentation. Handouts very informative.

William Moran

Shire Canada

It was a very good presentation of complex material, managed in an understandable format. The information will be useful in my practice.

Jay H. McDowell

Withers Bergman

Very clearly presented and very practical advice.

Winthrop Rutherfurd, Jr.

White & Case

or call 1-800-926-7926

Tax Law Advisory Board

Robert S. Barnett


Capell Barnett Matalon & Schoenfeld

William H. Byrnes

Associate Dean, Special Projects

Texas A&M University Law

Robert A.N. Cudd

Senior Partner


Patrick Derdenger

Tax Partner

Steptoe & Johnson

Janice Eiseman


Cummings & Lockwood

Lynn Fowler


Kilpatrick Townsend & Stockton

Edward Froelich

Of Counsel

Morrison & Foerster

Daniel L. Gottfried


Hinckley Allen

J. Leigh Griffith

Partner and Practice Group Leader - Tax

Waller Lansden Dortch & Davis

L. Andrew Immerman


Alston & Bird

Mark S. Lange



Joseph C. Mandarino


Smith Gambrell & Russell

Lori Mathison

Partner, Cross-Border Transactions Tax

Fraser Milner Casgrain

Christian M. McBurney


Arent Fox

Suzanne Ross McDowell

Partner, Tax-Exempt Organizations

Steptoe & Johnson

Todd Reinstein

Partner, Corporate Tax and Due Diligence

Pepper Hamilton

Alex Sadler


Morgan Lewis

Susan Seabrook


Buchanan Ingersoll & Rooney

Peter Stathopoulos

Managing Director, State and Local Tax Practice

Bennett Thrasher

Eric Tresh

Partner & Co-Chair, State & Local Tax Practice

Sutherland Asbill & Brennan

Amanda Wilson


Lowndes Drosdick Doster Kantor & Reed

or call 1-800-926-7926

Our Guarantee

Strafford webinars are backed by our 100% Unconditional Money-Back Guarantee: if you are not satisfied with any of our products, simply let us know and get a full refund. For more information regarding complaints and refunds, please contact us at 1-800-926-7926 ext 10. Complaints regarding this program can be submitted via the course evaluation found in the “Thank you” e-mail at the end of the course.