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Internal Revenue Code, § 734. Adjustment To Basis Of Undistributed Partnership Property Where Section 754 Election Or Substantial Basis Reduction

I.R.C. § 734(a) General Rule
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.
I.R.C. § 734(b) Method Of Adjustment
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—
I.R.C. § 734(b)(1)
increase the adjusted basis of partnership property by—
I.R.C. § 734(b)(1)(A)
the amount of any gain recognized to the distributee partner with respect to such distribution under section 731(a)(1), and
I.R.C. § 734(b)(1)(B)
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
I.R.C. § 734(b)(2)
decrease the adjusted basis of partnership property by—
I.R.C. § 734(b)(2)(A)
the amount of any loss recognized to the distributee partner with respect to such distribution under section 731(a)(2), and
I.R.C. § 734(b)(2)(B)
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.
I.R.C. § 734(c) Allocation Of Basis
The allocation of basis among partnership properties where subsection (b) is applicable shall be made in accordance with the rules provided in section 755.
I.R.C. § 734(d) Substantial Basis Reduction
I.R.C. § 734(d)(1) In General
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.
I.R.C. § 734(d)(2) Regulations
For regulations to carry out this subsection, see section 743(d)(2).
I.R.C. § 734(e) Exception For Securitization Partnerships
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.
(Aug. 16, 1954, ch. 736, 68A Stat. 247; July 18, 1984, Pub. L. 98-369, div. A, title I, 78(a), 98 Stat. 597; Oct. 22, 2004, Pub. L. 108-357, title VIII, Sec. 833(c), 118 Stat. 1418; Dec. 21, 2005, Pub. L. 109-135, title IV, Sec. 403(bb), 119 Stat. 2577.)
BACKGROUND NOTES
AMENDMENTS
2005 - Subsec. (a). Pub. L. 109-135, Sec. 403(bb)(1), amended subsec. (a) by inserting “with respect to such distribution” before the period at the end.
Subsec. (b). Pub. L. 109-135, Sec. 403(bb)(2), amended the material that precedes par. (1) of subsec. (b). Before amendment, it read as follows:
“In the case of a distribution of property to a partner, a partnership, with respect to which the election provided in section 754 is in effect or unless there is a substantial basis reduction, shall-”.
2004 - Sec. 734. Pub. L. 108-357, Sec. 833(c)(5), amended the heading of Sec. 734 by substituting “Adjustment to basis of undistributed partnership property where section 754 election or substantial basis reduction” for “Optional adjustment to basis of undistributed partnership property”.
Subsec. (a). Pub. L. 108-357, Sec. 833(c)(1), amended subsec. (a) by inserting “or unless there is a substantial basis reduction" before the period.
Subsec. (b). Pub. L. 108-357, Sec. 833(c)(2), amended subsec. (b) by inserting “or unless there is a substantial basis reduction" after “section 754 is in effect”.
Subsec. (d)-(e). Pub. L. 108-357, Sec. 833, added subsec. (d) and (e).
1984--Subsec. (b). Pub. L. 98-369 inserted at end “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.”
EFFECTIVE DATE OF 2005 AMENDMENTS
Amendments by Sec. 403(bb) of Pub. L. 109-135 effective as if included in the provisions of the American Jobs Creation Act of 2004 [Pub. L. 108-357, Sec. 833] to which they relate.
EFFECTIVE DATE OF 2004 AMENDMENT
Amendments by Sec. 833(c) of Pub. L. 108-357 effective for distributions after the date of the enactment of this Act [Enacted: Oct. 22, 2004].
EFFECTIVE DATE OF 1984 AMENDMENT
Section 78(b) of Pub. L. 98-369 provided that: “The amendment made by subsection (a) [amending this section] shall apply to distributions after March 1, 1984, in taxable years ending after such date.”