§734 — Adjustment to basis of undistributed partnership property where section 754 election or substantial basis reduction
24 citing cases
Statute Text — 26 U.S.C. §734
The basis of partnership property shall not be adjusted as the result of a distribution of property to a partner unless the election, provided in section 754 (relating to optional adjustment to basis of partnership property), is in effect with respect to such partnership or unless there is a substantial basis reduction with respect to such distribution.
In the case of a distribution of property to a partner by a partnership with respect to which the election provided in section 754 is in effect or with respect to which there is a substantial basis reduction, the partnership shall—
increase the adjusted basis of partnership property by—
the amount of any gain recognized to the distributee partner with respect to such distribution under section 731(a)(1), and
in the case of distributed property to which section 732(a)(2) or (b) applies, the excess of the adjusted basis of the distributed property to the partnership immediately before the distribution (as adjusted by section 732(d)) over the basis of the distributed property to the distributee, as determined under section 732, or
decrease the adjusted basis of partnership property by—
the amount of any loss recognized to the distributee partner with respect to such distribution under section 731(a)(2), and
in the case of distributed property to which section 732(b) applies, the excess of the basis of the distributed property to the distributee, as determined under section 732, over the adjusted basis of the distributed property to the partnership immediately before such distribution (as adjusted by section 732(d)).
Paragraph (1)(B) shall not apply to any distributed property which is an interest in another partnership with respect to which the election provided in section 754 is not in effect.
The allocation of basis among partnership properties where subsection (b) is applicable shall be made in accordance with the rules provided in section 755.
For purposes of this section, there is a substantial basis reduction with respect to a distribution if the sum of the amounts described in subparagraphs (A) and (B) of subsection (b)(2) exceeds $250,000.
For regulations to carry out this subsection, see section 743(d)(2).
For purposes of this section, a securitization partnership (as defined in section 743(f)) shall not be treated as having a substantial basis reduction with respect to any distribution of property to a partner.
Treasury Regulations
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Treas. Reg. §1.734-1Optional adjustment to basis of undistributed partnership property
(a) General rule. A partnership shall not adjust the basis of partnership property as the result of a distribution of property to a partner, unless the election provided in section 754 (relating to optional adjustment to basis of partnership property) is in effect.
(b) Method of adjustment—(1) Increase in basis. Where an election under section 754 is in effect and a distribution of partnership property is made, whether or not in liquidation of the partner's entire interest in the partnership, the adjusted basis of the remaining partnership assets shall be increased by:
(i) The amount of any gain recognized under section 731(a)(1) to the distributee partner, or
(ii) The excess of the adjusted basis to the partnership immediately before the distribution of any property distributed (including adjustments under section 743(b) or section 732(d) when applied) over the basis under section 732 (including such special basis adjustments) of such property to the distributee partner.
See § 1.460-4(k)(2)(iv)(D) for a rule determining the partnership's basis in a long-term contract accounted for under a long-term contract method of accounting. The provisions of this paragraph (b)(1) are illustrated by the following examples:
(2) Decrease in basis. Where the election provided in section 754 is in effect and a distribution is made in liquidation of a partner's entire interest, the partnership shall decrease the adjusted basis of the remaining partnership property by:
(i) The amount of loss, if any, recognized under section 731(a)(2) to the distributee partner, or
(ii) The excess of the basis of the distributed property to the distributee, as determined under section 732 (including adjustments under section 743(b) or section 732(d) when applied) over the adjusted basis of such property to the partnership (including such special basis adjustments) immediately before such distribution.
The provisions of this subparagraph may be illustrated by the following examples:
(c) Allocation of basis. For allocation among the partnership properties of basis adjustments under section 734(b) and paragraph (b) of this section, see section 755 and § 1.755-1.
(d) Returns. A partnership which must adjust the bases of partnership properties under section 734 shall attach a statement to the partnership return for the year of the distribution setting forth the computation of the adjustment and the partnership properties to which the adjustment has been allocated.
(e) Recovery of adjustments to basis of partnership property—(1) Increases in basis. For purposes of section 168, if the basis of a partnership's recovery property is increased as a result of the distribution of property to a partner, then the increased portion of the basis must be taken into account as if it were newly-purchased recovery property placed in service when the distribution occurs. Consequently, any applicable recovery period and method may be used to determine the recovery allowance with respect to the increased portion of the basis. However, no change is made for purposes of determining the recovery allowance under section 168 for the portion of the basis for which there is no increase.
(2) Decreases in basis. For purposes of section 168, if the basis of a partnership's recovery property is decreased as a result of the distribution of property to a partner, then the decrease in basis must be accounted for over the remaining recovery period of the property beginning with the recovery period in which the basis is decreased.
(3) Effective date. This paragraph (e) applies to distributions of property from a partnership that occur on or after December 15, 1999.
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Treas. Reg. §1.734-1(a)General rule.
General rule. A partnership shall not adjust the basis of partnership property as the result of a distribution of property to a partner, unless the election provided in section 754 (relating to optional adjustment to basis of partnership property) is in effect.
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Treas. Reg. §1.734-1(b)Method of adjustment—(1) Increase in basis.
Method of adjustment—(1) Increase in basis. Where an election under section 754 is in effect and a distribution of partnership property is made, whether or not in liquidation of the partner's entire interest in the partnership, the adjusted basis of the remaining partnership assets shall be increased by:
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Treas. Reg. §1.734-1(c)Allocation of basis.
Allocation of basis. For allocation among the partnership properties of basis adjustments under section 734(b) and paragraph (b) of this section, see section 755 and § 1.755-1.
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Treas. Reg. §1.734-1(d)Returns.
Returns. A partnership which must adjust the bases of partnership properties under section 734 shall attach a statement to the partnership return for the year of the distribution setting forth the computation of the adjustment and the partnership properties to which the adjustment has been allocated.
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Treas. Reg. §1.734-1(e)Recovery of adjustments to basis of partnership property—(1) Increases in basis.
Recovery of adjustments to basis of partnership property—(1) Increases in basis. For purposes of section 168, if the basis of a partnership's recovery property is increased as a result of the distribution of property to a partner, then the increased portion of the basis must be taken into account as if it were newly-purchased recovery property placed in service when the distribution occurs. Consequently, any applicable recovery period and method may be used to determine the recovery allowance with respect to the increased portion of the basis. However, no change is made for purposes of determining the recovery allowance under section 168 for the portion of the basis for which there is no increase.
(2) Decreases in basis. For purposes of section 168, if the basis of a partnership's recovery property is decreased as a result of the distribution of property to a partner, then the decrease in basis must be accounted for over the remaining recovery period of the property beginning with the recovery period in which the basis is decreased.
(3) Effective date. This paragraph (e) applies to distributions of property from a partnership that occur on or after December 15, 1999.
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Treas. Reg. §1.734-1(i)§1.734-1(i)
The amount of loss, if any, recognized under section 731(a)(2) to the distributee partner, or
(ii) The excess of the basis of the distributed property to the distributee, as determined under section 732 (including adjustments under section 743(b) or section 732(d) when applied) over the adjusted basis of such property to the partnership (including such special basis adjustments) immediately before such distribution.
The provisions of this subparagraph may be illustrated by the following examples:
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Treas. Reg. §1.734-2Adjustment after distribution to transferee partner
(a) In the case of a distribution of property by the partnership to a partner who has obtained all or part of his partnership interest by transfer, the adjustments to basis provided in section 743(b) and section 732(d) shall be taken into account in applying the rules under section 734(b). For determining the adjusted basis of distributed property to the partnership immediately before the distribution where there has been a prior transfer of a partnership interest with respect to which the election provided in section 754 or section 732(d) is in effect, see §§ 1.732-1 and 1.732-2.
(b)(1) If a transferee partner, in liquidation of his entire partnership interest, receives a distribution of property (including money) with respect to which he has no special basis adjustment, in exchange for his interest in property with respect to which he has a special basis adjustment, and does not utilize his entire special basis adjustment in determining the basis of the distributed property to him under section 732, the unused special basis adjustment of the distributee shall be applied as an adjustment to the partnership basis of the property retained by the partnership and as to which the distributee did not use his special basis adjustment. The provisions of this subparagraph may be illustrated by the following example:
(2) The provisions of this paragraph do not apply to the extent that certain distributions are treated as sales or exchanges under section 751(b) (relating to unrealized receivables and substantially appreciated inventory items). See section 751(b) and paragraph (b) of § 1.751-1.
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Treas. Reg. §1.734-2(a)In the case of a distribution of property by the partnership to a partner who has obtained all or part of his partnership interest by transfer, the adjustments to basis provided in section 743(b) and section 732(d) shall be taken into account in applying the rules under section 734(b).
In the case of a distribution of property by the partnership to a partner who has obtained all or part of his partnership interest by transfer, the adjustments to basis provided in section 743(b) and section 732(d) shall be taken into account in applying the rules under section 734(b). For determining the adjusted basis of distributed property to the partnership immediately before the distribution where there has been a prior transfer of a partnership interest with respect to which the election provided in section 754 or section 732(d) is in effect, see §§ 1.732-1 and 1.732-2.
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Treas. Reg. §1.734-2(b)§1.734-2(b)
(1) If a transferee partner, in liquidation of his entire partnership interest, receives a distribution of property (including money) with respect to which he has no special basis adjustment, in exchange for his interest in property with respect to which he has a special basis adjustment, and does not utilize his entire special basis adjustment in determining the basis of the distributed property to him under section 732, the unused special basis adjustment of the distributee shall be applied as an adjustment to the partnership basis of the property retained by the partnership and as to which the distributee did not use his special basis adjustment. The provisions of this subparagraph may be illustrated by the following example:
(2) The provisions of this paragraph do not apply to the extent that certain distributions are treated as sales or exchanges under section 751(b) (relating to unrealized receivables and substantially appreciated inventory items). See section 751(b) and paragraph (b) of § 1.751-1.
24 Citing Cases
Attached to both returns was the following statement, signed by Oriole23 − as general partner of OPLP: Otay Project LP hereby elects under Section 754 of the Internal Revenue Code to apply the provision of § 734 (b) and § 743 (b) in adjusting the basis of the partnership 23 The first statement attached to the March 2007 Form 1065 was signed by Al as general partner, and the second statement attached to the April 2007 Form 1065 was signed by Jim as VP of Oriole.
sec. 723 (providing that the basis ofpropertycontributed to a partnership by a partner shall be the adjusted basis ofsuch propertyto the contributing partner at the time ofcontribution, increased by the amount ofany gain recognized at contribütion) sec. 734 (providing fules for the adjustment of basis in partnership propertyto account for distributions ifthe partnership has made an election under sec. 754); sec. 743 (providing rules for the adjustment of basis in partnership propertyto account f
23 (providing that the basis of property contributed to a partnership by a partner shall be the adjusted basis of such property to the contributing partner at the time of contribution, increased by the amount of any gain recognized at contribution); sec. 734 (providing rules for the adjustment of basis in partnership property to account for distributions if the partnership has made an election under sec. 754); sec. 743 (providing rules for the adjustment of basis in partnership property to accou
The -16- amendments to section 734 make the basis adjustment rules of that section mandatory to any distribution where there is a substantial basis reduction.
The -16- amendments to section 734 make the basis adjustment rules of that section mandatory to any distribution where there is a substantial basis reduction.
The -16- amendments to section 734 make the basis adjustment rules of that section mandatory to any distribution where there is a substantial basis reduction.
The -16- amendments to section 734 make the basis adjustment rules of that section mandatory to any distribution where there is a substantial basis reduction.
The -16- amendments to section 734 make the basis adjustment rules of that section mandatory to any distribution where there is a substantial basis reduction.
The -16- amendments to section 734 make the basis adjustment rules of that section mandatory to any distribution where there is a substantial basis reduction.
The -16- amendments to section 734 make the basis adjustment rules of that section mandatory to any distribution where there is a substantial basis reduction.
The -16- amendments to section 734 make the basis adjustment rules of that section mandatory to any distribution where there is a substantial basis reduction.
Section 734 adjustment : For the taxable year ended December 25, 1999, it is determined that Wilmington Partners L .P . has failed to establish the character or adjusted bases of the assets distributed by them [sic] to Charles River Partners L.P . Wilmington Partners L .P . has likewise failed to establish that there was any increase to the basis o