Regulations streamline partnership basis elections

By Paul Bonner

Under final regulations issued Thursday by the IRS and Treasury (T.D. 9963), partnerships electing to adjust the basis of partnership property under Sec. 754 will not have to include a partner's signature on their election statement.

Partnerships generally may make the election in the case of a distribution of property in the manner provided in Sec. 734 or a transfer of a partnership interest under Sec. 743. The election applies to all distributions of property and all transfers of a partnership interest in the partnership during the tax year with respect to which it is filed and for all subsequent tax years.

The regulations adopt without change proposed regulations (REG-116256-17) issued in 2017. The regulations amend Regs. Sec. 1.754-1(b), which provides the general requirements for making a Sec. 754 election.

Generally, the partnership files a written statement with its timely filed partnership return for the tax year in which the distribution or transfer occurs. Under the existing regulations, a partner must sign the statement, among other requirements.

In the preamble to the proposed regulations, the IRS and Treasury noted that the signature requirement applied regardless of whether the return it accompanies is filed electronically or on paper. "Numerous requests" by partnerships for relief under Regs. Sec. 301.9100-3 had involved unsigned and therefore invalid Sec. 754 elections, especially those filed electronically, the preamble said. The IRS and Treasury thus proposed, and now have finalized, the amendment removing the signature requirement, which is intended to ease the burden on partnerships and streamline making the election.

Remaining requirements for a valid election include that it set forth the name and address of the partnership making the election and contain a declaration that the partnership elects under Sec. 754 to apply the provisions of Sec. 734(b) and Sec. 743(b).

The final regulations are effective beginning Aug. 5, 2022, although taxpayers have been able to rely on the proposed regulations previously.

— To comment on this article or to suggest an idea for another article, contact Paul Bonner at Paul.Bonner@aicpa-cima.com.

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