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

Navigating Unsettled Issues, Complex Rules, and Allocation Method Elections

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

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Conducted on Thursday, March 16, 2023

Recorded event now available

or call 1-800-926-7926

This course will provide tax advisers with a thorough and practical guide to navigating the complex requirements of Section 704(c). The panel will go in depth to identify the contributed property subject to Section 704(c) and will discuss available elections to allocate gain and loss.


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.



  1. Critical aspects of Section 704(c)
    1. Sharing of income, gain, loss, or deduction for property contributed must take account of variations between basis and fair market value at contribution
    2. The Treasury and IRS' broad authority to determine proper application of allocations
    3. Navigating complex questions about built-in gain or loss property contributed to a partnership
    4. Book vs. tax basis
    5. The "Ceiling Rule"
  2. Traditional, curative, and remedial allocation methods
  3. Revaluations
  4. Mixing bowl rules
  5. Anti-abuse rules


The panel will review these and other key issues:

  • Reviewing partnership agreements and other operating documents based on Section 704(c) considerations
  • Making choices among the allocation method elections
  • Whether and when revaluations are appropriate or required


Brown, Blane
Blane Brown
Senior Manager, M&A Tax

Mr. Brown has experience in transactional tax planning, including tax due diligence and structuring advice provided in...  |  Read More

Kotlarsky, Brooke
Brooke Kotlarsky
Senior Manager, M&A Tax

Ms. Kotlarsky is a Senior Manager in KPMG’s Mergers & Acquisitions Tax practice with more than nine years of...  |  Read More

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