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 course 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.
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Professor Noel P. Brock
Assistant Professor
Eastern Michigan University
Professor Noel P. Brock is an associate professor at Eastern Michigan University where he teaches and researches in all... | Read More
Professor Noel P. Brock is an associate professor at Eastern Michigan University where he teaches and researches in all areas of tax law with specific emphasis on business (partnership, corporate and international) taxation. He teaches primarily in the Master of Tax Program. Prior to entering academia in January 2012, he spent over 18 years in private practice—most recently, he was a partner and the partnership tax practice leader in the Washington National Tax Office of Grant Thornton LLP. Prior to joining Grant Thornton LLP, Professor Brock practiced in with international accounting and law firms where he represented clients in transactional tax matters including partnership, international, corporate and financial products transactions. Since entering academia, Professor Brock has remained engaged in practice on a part time basis and is currently a Principal with Holthouse Carlin & Van Trigt LLP.
Professor Brock’s research focuses on business taxation and accounting education. Among the awards he has received since entering academia include being awarded researcher of the year twice. His research has been published in in leading international and national journals, including The Tax Adviser, Journal of Accountancy, Journal of Passthroughs, Journal of International Taxation, Tax Notes, The Journal of Legal Tax Research, Practicing Law Institute, and CCH TAXES, The Tax Magazine, among others. His work been cited by other leading tax professionals and in major tax treatises.
Professor Brock has spoken at international, national and regional tax conferences, including the ABA Section of Taxation, The 67th Annual University of Chicago Federal Tax Conference, District of Columbia Bar, Strafford Publications, A.L.I. CLE, AICPA, Private Equity International, and the Atlanta Tax Forum.
Professor Brock also remains very active in both the AICPA (as former chair and associate member of the Partnership Technical Resource Panel) and the ABA (former chair of and current member of the Partnerships & LLCs Committee, and Member of the Corporate Taxation Committee).
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