Sec. 754 Election – Transfers of Partnership Interests – IRC Sec 743
A sold his one-third interest in partnership profits and capital to D for $80,000. Three years later when the partnership still owned the lots and the land, and D’s outside basis is still $80,000, D sold his interest to E for $80,000. Immediately prior to A’s sale to D, the partnership’s balance sheets were as follows: (000’s omitted)
Basis Book
Lots (held for resale) 60 90
Land (held for investment) 120 150
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180 240
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A 60 80
B 60 80
C 60 80
————
180 240
a) Determine the tax consequences to A of the sale to D.
b) Construct the balance sheets of the partnership immediately after D’s purchase, assuming the partnership had not made the Sec. 754 election
c) Determine the tax consequences to D of his sale to E.
d) What would result to D if an election had been made under Section 754 for the year in which D bought his interest?
e) Who makes the Section 754 election? When?
f) As D’s tax advisor, would you have advised that D’s purchase be conditioned upon a Section 754 election by the partnership?
g) Will D’s purchase and the Section 754 election have any immediate tax impact on B and C?
h) Should A have any reason to object to the partnership’s Section 754 election?
