Section 704(c): Contributions of Appreciated or Depreciated Property to Partnerships and LLCs

Navigating Complex Allocation Rules, Curative and Remedial Allocations, Elections, and Anti-Abuse Rules

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

Conducted on Thursday, May 25, 2017
Recorded event now available

This CLE/CPE webinar 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 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 properly allocated.

Section 704(c) provides elective methods for allocations to address inequities in allocating gain or loss from appreciated or depreciated property. However, these elections are limited by anti-abuse rules found in the Section 704(c) regulations. 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. Key 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. Broad authority given to Treasury and IRS to determine how allocations should be made
    3. Navigating complex questions about built-in gain or loss property contributed to partnership
    4. Book v. 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

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)
  • Select specific drafting language to preserve flexibility in operating documents


Jennifer A. O'Leary, Partner
Pepper Hamilton, Philadelphia

Ms. O'Leary is a partner in her firm's Tax Practice Group. She focuses her practice on the federal income tax aspects of pass-throughs, private investment funds, domestic and international mergers and acquisitions, dispositions, corporate tax restructuring, debt restructuring, regulated investment companies and real estate investments trusts.

Paul Schockett, Counsel
Skadden Arps Slate Meagher & Flom, Washington, D.C.

Mr. Schockett advises public and private companies on a broad range of U.S. federal income tax matters, with particular focus on U.S. and cross-border transactions. His practice includes significant work involving the tax aspects of partnership acquisitions and dispositions, joint venture and investment fund formations, and corporate mergers and acquisitions. He also advises clients with regard to the taxation of debt and equity financings, initial public offerings, bankruptcy restructurings and internal reorganizations. He frequently writes and lectures on tax-related topics, including partnership taxation, M&A transaction structuring, tax aspects of troubled company workouts, and renewable energy tax benefits.

Matthew J. Donnelly, Esq.
Skadden Arps Slate Meagher & Flom, Washington, D.C.

Mr. Donnelly advises public and private companies on a broad range of domestic and international U.S. federal income tax issues, with particular focus on mergers, acquisitions, dispositions, joint ventures, debt and equity offerings, bankruptcy restructurings, transfer pricing, real estate investment trusts and tax-equity financings. He has significant experience with tax issues associated with related-party transactions.

Anna Blair, Esq.
Wick Phillips Gould & Martin, Fort Worth, Texas

Ms. Blair advises clients on federal income tax and Texas state tax planning applicable to partnerships, limited liability companies, S corporations, and privately and publicly held corporations. Her experience includes the formation, operation and dissolution of closely held corporations, partnerships, limited liability companies and S corporations. She has also advised clients regarding federal income tax planning for various business entities, including counsel on tax aspects of taxable and tax-free mergers, acquisitions, reorganizations and dispositions, equity and debt offerings and real estate transactions; she has particular experience in the areas of partnership and oil and gas taxation.

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