Sect. 704(c): Contributions to Partnerships and LLCs

Description

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

These rules are flexible by design but raise a host of complicated decisions for tax advisers. Advisers must consider Section 704(c) tax consequences when reviewing partnership agreements and preparing partnership returns to ensure that gain and loss are appropriately allocated.

Section 704(c) provides elective methods for allocations to address inequities in allocating gain or loss from appreciated or depreciated property--however, the anti-abuse rules found in Section 704(c) regulate these elections. Tax advisers must know the available elections and limitations to avoid costly tax consequences.

Listen as our panel of experienced tax practitioners provides a thorough and practical guide to the rules of Section 704(c) governing partners' contributions of appreciated or depreciated property.