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Section 754 Elections on Form 1065: Making Valid Elections, Seeking Relief for Missed or Invalid Elections

Mastering the Mechanics of Election Statements, Schedules K-1, Obtaining Relief under Regulation ยง 301.9100, and More

Note: CLE credit is not offered on this program

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

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Conducted on Monday, October 2, 2023

Recorded event now available

or call 1-800-926-7926

This course will provide tax advisers and compliance professionals with a thorough and practical guide to the mechanics of reporting a Section 754 election on a partnership's IRS Form 1065-–“U.S. Return of Partnership Income.” The panel will first discuss the significance, tax stakes, and mechanics of the Section 754 election, and then explain the specific types of relief that may be available when a partnership fails to make a timely and valid election.


The Section 754 election is complex and critical for tax advisers serving partnerships and their partners. Section 754 allows a partnership to make an election to adjust the tax bases of its assets under certain circumstances. In essence, the election provides for a "rebalancing" of the partnership's tax bases in partnership assets under Sections 734 and/or 743 to prevent distortions between the entity’s inside bases in its assets and the partners’ outside bases in their partnership interests. Understanding the Section 754 election is thus an integral and critical part of partnership tax practice.

Missed or incorrect Section 754 elections can easily result in substantial, negative tax consequences to the taxpayers, and thus potential liability claims against tax practitioners and their respective advisory firms. Despite the election’s importance, the calculation and reporting of the requisite tax basis adjustments often challenges and confounds even the most experienced tax practitioners. Tax compliance professionals must not only master the mechanics of calculating and reporting an election on Form 1065, but they must also understand exactly when and how to obtain relief if an attempted election is incorrect or defective, or simply not made on time.

Making the initial election requires that a special statement be filed, that partners be identified, and that specific (and often complex) calculations be done so as to correctly document the tax bases adjustments to be reported on each partner's Schedule K-1. The §734(b) and §743(b) basis adjustments must be correctly allocated pursuant to Section 755.

The Code and Treasury regulations contain both automatic and discretionary relief provisions in the case of missed or defective Section 754 elections. In cases where the taxpayer is seeking relief that is discretionary with the Government, tax advisers must usually show how their client’s situation meets certain requisite criteria and benchmarks in order to qualify their clients for the remedies requested--the elements of which have been delineated in U.S. court cases. There are also specific procedures to correct prior tax basis adjustments, and to request that a prior Section 754 election be revoked or treated as never made.

Listen as our expert panel provides a practical guide to the key tax considerations inherent in determining whether or not a Section 754 election should be made, the mechanics of making a valid Section 754 election, the alternative ways to seek relief for missed or late elections, and the sanctioned methods available for correcting defects in such elections.



  1. Substantive overview of the Section 754 election
    1. Section 743(b): Transfer of partnership interests
    2. Section 734(b): Distributions of property or cash
    3. Section 755: Allocation of the §734(b) and §743(b) basis adjustments
  2. IRS Form 1065: Tips regarding the Section 754 election
  3. Missed Section 754 elections: Relief available under Reg. § 301.9100
    1. Automatic extensions of time: Reg. § 301.9100-2
    2. Non-automatic, discretionary extensions of time: Reg. § 301.9100-3
    3. Establishing “Reasonable Action and Good Faith” in a PLR request: The positive & negative benchmarks that should be established and discussed
    4. Specific case studies and examples
  4. Revoking a Section 754 election
  5. Final takeaway tips and Q&A


The panel will discuss these and other important topics:

  • Documentation that must accompany a Section 754 election on a Form 1065 tax return
  • Who must sign a Section 754 election?
  • A partnership's Section 754 election absent notice from a transferee partner
  • Steps for claiming automatic relief under Section 9100
  • Seeking Section 9100 discretionary relief – How to draft an effective PLR request and understanding the requisite benchmarks the IRS is likely to consider


Dyer, Marcus
Marcus E. Dyer, CPA, JD

Principal, Team Leader of Tax Controversy
Withum Smith+Brown

Mr. Dyer manages and reviews all aspects of federal and state tax compliance for C-corporation, S corporation and...  |  Read More

Fuller, Pamela
Pamela A. Fuller, Esq., J.D., LL.M.

Senior Counsel (Tax, M&A, International)
Tully Rinckey PLLC and Zahn Law Group

Ms. Fuller is a corporate and international tax attorney with over 20 years experience in advising a wide range of...  |  Read More

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