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Reverse 704(c) Allocations: Partnership Revaluations, Triggering Events, and Recent IRS Guidance

Recording of a 110-minute CPE webinar with Q&A

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Conducted on Wednesday, January 10, 2018

Recorded event now available

or call 1-800-926-7926

This course will provide tax advisers with a practical guide and drill-down into the complexities of reverse allocations under Section 704(c). The panel will detail the specific circumstances and events under which a partnership may undertake a revaluation through reverse allocation and describe permitted reverse allocations. The panel will also discuss the impact of recent IRS private letter ruling guidance on using partial netting in a reverse allocation revaluation of investment partnerships.


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

There are two types of 704(c) allocations: “forward” allocations at the time of contribution of appreciated property and “reverse” allocations on the occurrence of certain events specified in the partnership operating agreement. Any reverse allocation must have “substantial economic effect,” and the IRS frequently challenges allocations it considers as an unreasonable attempt to shift tax consequences among partners.

Reverse Section 704(c) allocations are complex. While the Code provides elective methods for allocations to address inequities in allocating gain or loss from appreciated or depreciated property, advisers must be fully aware of the anti-abuse rules found in the Section 704(c) regulations, which limit the scope of allocations permitted.

Listen as our panel of experienced tax practitioners provides a thorough and practical guide to Section 704(c) reverse allocations to avoid costly tax consequences.



  1. Review of partnership allocation rules
  2. Reverse allocations
  3. Revaluation methodologies
  4. Layered reverse allocations
  5. Regulatory allocations
  6. Recent IRS Private Letter Ruling on partial netting in revaluation of investment partnership assets


The panel will review these and other key issues:

  • What are the triggering events that will permit a reverse allocation and revaluing of partnership assets?
  • Calculating and maintaining records of “layers” of reverse allocations
  • Whether and when revaluations are appropriate or required
  • Recent IRS guidance on use of partial netting in revaluation of investment partnership assets


O'Leary, Jennifer A.
Jennifer A. O'Leary

Pepper Hamilton

Ms. O'Leary is a partner in her firm's Tax Practice Group. She focuses her practice on the federal income...  |  Read More

Ricketts, Robert
Robert Ricketts, Ph.D.

Director of School of Accounting
Texas Tech University

Dr. Ricketts has been a member of the Accounting Faculty since 1988 and has held the Frank M. Burke Chair in Taxation...  |  Read More

Stauber, David
David Stauber

Troutman Pepper

Mr. Stauber focuses his practice on the federal income tax aspects of mergers and acquisitions, fund formation, and...  |  Read More

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