View all text of Subpart C [§ 741 - § 743]
§ 743. Special rules where section 754 election or substantial built-in loss
(a) General rule
(b) Adjustment to basis of partnership property
In the case of a transfer of an interest in a partnership by sale or exchange or upon the death of a partner, a partnership with respect to which the election provided in section 754 is in effect or which has a substantial built-in loss immediately after such transfer shall—
(1) increase the adjusted basis of the partnership property by the excess of the basis to the transferee partner of his interest in the partnership over his proportionate share of the adjusted basis of the partnership property, or
(2) decrease the adjusted basis of the partnership property by the excess of the transferee partner’s proportionate share of the adjusted basis of the partnership property over the basis of his interest in the partnership.
Under regulations prescribed by the Secretary, such increase or decrease shall constitute an adjustment to the basis of partnership property with respect to the transferee partner only. A partner’s proportionate share of the adjusted basis of partnership property shall be determined in accordance with his interest in partnership capital and, in the case of property contributed to the partnership by a partner, section 704(c) (relating to contributed property) shall apply in determining such share. In the case of an adjustment under this subsection to the basis of partnership property subject to depletion, any depletion allowable shall be determined separately for the transferee partner with respect to his interest in such property.
(c) Allocation of basis
(d) Substantial built-in loss
(1) In general
For purposes of this section, a partnership has a substantial built-in loss with respect to a transfer of an interest in the partnership if—
(A) the partnership’s adjusted basis in the partnership property exceeds by more than $250,000 the fair market value of such property, or
(B) the transferee partner would be allocated a loss of more than $250,000 if the partnership assets were sold for cash equal to their fair market value immediately after such transfer.
(2) Regulations
(e) Alternative rules for electing investment partnerships
(1) No adjustment of partnership basis
(2) Loss deferral for transferee partner
(3) No reduction in partnership basis
(4) Certain basis reductions treated as losses
(5) Electing investment partnership
For purposes of this subsection, the term “electing investment partnership” means any partnership if—
(A) the partnership makes an election to have this subsection apply,
(B) the partnership would be an investment company under section 3(a)(1)(A) of the Investment Company Act of 1940 but for an exemption under paragraph (1) or (7) of section 3(c) of such Act,
(C) such partnership has never been engaged in a trade or business,
(D) substantially all of the assets of such partnership are held for investment,
(E) at least 95 percent of the assets contributed to such partnership consist of money,
(F) no assets contributed to such partnership had an adjusted basis in excess of fair market value at the time of contribution,
(G) all partnership interests of such partnership are issued by such partnership pursuant to a private offering before the date which is 24 months after the date of the first capital contribution to such partnership,
(H) the partnership agreement of such partnership has substantive restrictions on each partner’s ability to cause a redemption of the partner’s interest, and
(I) the partnership agreement of such partnership provides for a term that is not in excess of 15 years.
The election described in subparagraph (A), once made, shall be irrevocable except with the consent of the Secretary.
(6) Regulations
(f) Exception for securitization partnerships
(1) No adjustment of partnership basis
(2) Securitization partnership
(Aug. 16, 1954, ch. 736, 68A Stat. 249; Pub. L. 94–455, title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 98–369, div. A, title I, § 71(b), July 18, 1984, 98 Stat. 589; Pub. L. 108–357, title VIII, § 833(b)(1)–(4)(A), (5), (6)(A), Oct. 22, 2004, 118 Stat. 1589, 1591; Pub. L. 115–97, title I, §§ 13502(a), 13504(b)(2), Dec. 22, 2017, 131 Stat. 2141, 2142.)