I.R.C. § 743(a) General Rule —
The basis of partnership property shall not be adjusted as the result of a transfer
of an interest in a partnership by sale or exchange or on the death of a partner
unless the election provided by section 754 (relating
to optional adjustment to basis of partnership property) is in effect with respect
to such partnership or unless the partnership has a substantial built-in loss immediately
after such transfer.
I.R.C. § 743(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—
I.R.C. § 743(b)(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
I.R.C. § 743(b)(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.
I.R.C. § 743(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. § 743(d) Substantial Built-In Loss
I.R.C. § 743(d)(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—
I.R.C. § 743(d)(1)(A) —
the partnership's adjusted basis in the partnership property exceeds by more than
$250,000 the fair market value of such property, or
I.R.C. § 743(d)(1)(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.
I.R.C. § 743(d)(2) Regulations —
The Secretary shall prescribe such regulations as may be appropriate to carry out
the purposes of paragraph (1) and section 734(d),
including regulations aggregating related partnerships and disregarding property acquired
by the partnership in an attempt to avoid such purposes.
I.R.C. § 743(e) Alternative Rules For Electing Investment Partnerships
I.R.C. § 743(e)(1) No Adjustment Of Partnership Basis —
For purposes of this section, an electing investment partnership shall not be treated
as having a substantial built-in loss with respect to any transfer occurring while
the election under paragraph (6)(A) is in effect.
I.R.C. § 743(e)(2) Loss Deferral For Transferee Partner —
In the case of a transfer of an interest in an electing investment partnership, the
transferee partner's distributive share of losses (without regard to gains) from
the sale or exchange of partnership property shall not be allowed except to the extent
that it is established that such losses exceed the loss (if any) recognized
by the transferor (or any prior transferor to the extent not fully offset by a prior
disallowance under this paragraph) on the transfer of the partnership interest.
I.R.C. § 743(e)(3) No Reduction In Partnership Basis —
Losses disallowed under paragraph (2) shall not decrease the transferee partner's
basis in the partnership interest.
I.R.C. § 743(e)(4) Certain Basis Reductions Treated As Losses —
In the case of a transferee partner whose basis in property distributed by the partnership
is reduced under section 732(a)(2), the amount of the loss recognized by the transferor on the transfer of the partnership
interest which is taken into account under paragraph (2) shall be reduced by the
amount of such basis reduction.
I.R.C. § 743(e)(5) Electing Investment Partnership —
For purposes of this subsection, the term “electing investment partnership” means
any partnership if—
I.R.C. § 743(e)(5)(A) —
the partnership makes an election to have this subsection apply,
I.R.C. § 743(e)(5)(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,
I.R.C. § 743(e)(5)(C) —
such partnership has never been engaged in a trade or business,
I.R.C. § 743(e)(5)(D) —
substantially all of the assets of such partnership are held for investment,
I.R.C. § 743(e)(5)(E) —
at least 95 percent of the assets contributed to such partnership consist of money,
I.R.C. § 743(e)(5)(F) —
no assets contributed to such partnership had an adjusted basis in excess of fair
market value at the time of contribution,
I.R.C. § 743(e)(5)(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,
I.R.C. § 743(e)(5)(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.R.C. § 743(e)(5)(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 beirrevocable except with the consent of the Secretary.
I.R.C. § 743(e)(6) Regulations —
The Secretary shall prescribe such regulations as may be appropriate to carry out
the purposes of this subsection, including regulations for applying this subsection
to tiered partnerships.
I.R.C. § 743(f) Exception For Securitization Partnerships
I.R.C. § 743(f)(1) No Adjustment Of Partnership Basis —
For purposes of this section, a securitization partnership shall not be treated
as having a substantial built-in loss with respect to any transfer.
I.R.C. § 743(f)(2) Securitization Partnership —
For purposes of paragraph (1), the term “securitization partnership” means any partnership
the sole business activity of which is to issue securities which provide for a fixed
principal
(or similar) amount and which are primarily serviced by the cash flows of a discrete
pool (either fixed or revolving) of receivables or other financial assets that by
their terms convert into cash in a finite period, but only if the sponsor of the
pool reasonably believes that the receivables and other financial assets comprising
the pool are not acquired so as to be disposed of.
(Aug. 16, 1954, ch. 736, 68A Stat. 249; Oct. 4, 1976,
Pub. L. 94-455, title XIX, 1906(b)(13)(A), 90 Stat. 1834; July 18, 1984, Pub. L. 98-369, div. A, title I, 71(b), 98 Stat. 589; Oct. 22, 2004, Pub. L. 108-357, title VIII, Sec. 833(b), 118 Stat. 1418; Pub. L. 115-97, Sec. 13502(a), 13504(b)(2), Dec. 22, 2017, 131 Stat. 2054.)
BACKGROUND NOTES
AMENDMENTS
2017 -
Subsec. (d)(1). Pub. L. 115-97, Sec. 13502(a), amended par. (1). Before amendment, it read as follows:
“(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 a partnership if the partnership's
adjusted basis in the partnership property exceeds by more than $250,000 the fair
market value of such property.”
Subsec. (e)(4)-(7). Pub. L. 115-97, Sec. 13504(b)(2), amended subsec. (e) by striking par. (4) and redesignating pars.
(5)-(7) as pars. (4)-(6), respectively. Before being struck, par. (4) read as follows:
“(4) Effect Of Termination Of Partnership.—This subsection shall be applied without
regard to any termination of a partnership under section 708(b)(1)(B).”
2004 - Sec. 743. Pub. L. 108-357, Sec. 833(b)(5), amended the heading of Sec. 743 by substituting “Special rules where section 754
election or substantial built-in loss” for “Optional adjustment to basis of partnership
property”.
Subsec. (a). Pub. L. 108-357, Sec. 833(b)(1), amended subbsec. (a) by inserting
“or unless the partnership has a substantial built-in loss immediately after such
transfer” before the period at the end.
Subsec. (b). Pub. L. 108-357, Sec. 833(b)(2), amended subsec. (b) by inserting
“or which has a substantial built-in loss immediately after such transfer"
after “section 754 is in effect”.
Subsec. (d)-(e). Pub. L. 108-357, Sec. 833(b), added subsec. (d), (e), and (f).
1984--Subsec. (b). Pub. L. 98-369 substituted “property contributed to the partnership by a partner, section 704(c)
(relating to contributed property) shall apply in determining such share” for “an
agreement described in section 704(c)(2) (relating to effect of partnership agreement
on contributed property), such share shall be determined by taking such agreement
into account” in penultimate sentence.
1976--Subsec. (b). Pub. L. 94-455 struck out “or his delegate"
after “Secretary”.
EFFECTIVE DATE OF 2017 AMENDMENTS
Amendment by Pub. L. 115-97, Sec. 13502(a) effective for transfers of partnership interests after December 31,
2017.
Amendments by Pub. L. 115-97, Sec. 13504(b)(2), effective to partnership taxable years beginning after December
31, 2017.
EFFECTIVE DATE OF 2004 AMENDMENTS
Amendments by Pub. L. 108-357, Sec. 833(b), applicable to transfers after the date of the enactment of this Act [Enacted: Oct.
22, 2004]. Pub. L. 108-357, Sec. 833(d)(2)(B) of Pub. L. 108-357 provided the following transitional rule:
“In the case of an electing investment partnership
which is in existence on June 4, 2004, section 743(e)(6)(H) of the Internal Revenue Code of 1986, as added by this section, shall not apply to such partnership and
section 743(e)(6)(I) of such Code, as so added, shall be applied by substituting
‘20 years’
for ‘15 years’.”
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable with respect to property contributed to the partnership after Mar. 31,
1984, in taxable years ending after such date, see section 71(c)
of Pub. L. 98-369, set out as a note under section 704 of this title.
