PRIA, Government Policy, Made Personal

Summary

When a partnership’s property basis goes up or down under section 734(b) or 743(b), the change must be spread out so it mostly closes the gap between each asset’s fair market value and its current tax basis, or in another way allowed by IRS rules. If the change comes from a distribution or from transferring an interest and is linked to capital assets, section 1231(b) property, or other partnership property, it must be applied to partnership assets of the same kind and cannot reduce any asset’s basis below zero. If there is no like property or not enough basis, the adjustment applies to later-acquired like property under IRS rules. A decrease in basis may not be allocated to stock owned by a corporate partner (or a related person). Any amount that can’t go to that stock must be spread to other partnership property. If that required spread is bigger than the total basis of those other assets right before the spread, the partnership must recognize gain equal to the excess.

Title 26, §755

Internal Revenue Code, Source: USLM XML via OLRC

(a)General rule

Any increase or decrease in the adjusted basis of partnership property under section 734(b) (relating to the optional adjustment to the basis of undistributed partnership property) or section 743(b) (relating to the optional adjustment to the basis of partnership property in the case of a transfer of an interest in a partnership) shall, except as provided in subsection (b), be allocated—

(1)in a manner which has the effect of reducing the difference between the fair market value and the adjusted basis of partnership properties, or

(2)in any other manner permitted by regulations prescribed by the Secretary.

(b)Special rule

In applying the allocation rules provided in subsection (a), increases or decreases in the adjusted basis of partnership property arising from a distribution of, or a transfer of an interest attributable to, property consisting of— (1)

(2)any other property of the partnership,

shall be allocated to partnership property of a like character except that the basis of any such partnership property shall not be reduced below zero. If, in the case of a distribution, the adjustment to basis of property described in paragraph (1) or (2) is prevented by the absence of such property or by insufficient adjusted basis for such property, such adjustment shall be applied to subsequently acquired property of a like character in accordance with regulations prescribed by the Secretary.

(c)No allocation of basis decrease to stock of corporate partner

In making an allocation under subsection (a) of any decrease in the adjusted basis of partnership property under section 734(b)—

(1)no allocation may be made to stock in a corporation (or any person related (within the meaning of section 267(b) and 707(b)(1)) to such corporation) which is a partner in the partnership, and

(2)any amount not allocable to stock by reason of paragraph (1) shall be allocated under subsection (a) to other partnership property.

Gain shall be recognized to the partnership to the extent that the amount required to be allocated under paragraph (2) to other partnership property exceeds the aggregate adjusted basis of such other property immediately before the allocation required by paragraph (2).

Notes & Related Subsidiaries

Editorial Notes

Amendments

2004—Subsec. (c). Pub. L. 108–357 added subsec. (c). 1976—Subsecs. (a), (b). Pub. L. 94–455 struck out “or his delegate” after “Secretary” wherever appearing.

Statutory Notes and Related Subsidiaries

Effective Date

of 2004 Amendment Pub. L. 108–357, title VIII, § 834(b), Oct. 22, 2004, 118 Stat. 1592, provided that: “The amendment made by this section [amending this section] shall apply to distributions after the date of the enactment of this Act [Oct. 22, 2004].”

§755 Rules for Allocation of Basis