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partner.80 See H. Conf. Rept. 108-755, at 401 (2004).
Consequently, if the partnership has made a section 754 election,
the transferee partner is not allocated any existing built-in
gain or loss in the property. On the other hand, if the section
754 election is not made, inside basis in partnership property is
not adjusted upon the transfer of a partnership interest. Sec.
743(a). Consequently, in the absence of a section 754 election,
the transferee partner may be allocated the built-in gain or loss
when the partnership disposes of the property.81
80 More exactly, under sec. 743(b), in the case of a
transfer of a partnership interest by sale or exchange: (a) The
partnership increases its basis in partnership property by the
same amount as the transferee partner’s outside basis in his
partnership interest exceeds his inside basis in partnership
property; and (b) the partnership decreases its basis in
partnership property by the same amount as the transferee
partner’s inside basis in partnership property exceeds the
transferee partner’s outside basis in his partnership interest.
In the case of property contributed to the partnership by a
partner, the sec. 704(c) rules apply in determining the
transferee partner’s inside basis in partnership property. Sec.
743(b) (flush language). The increase and decrease in the
partnership’s basis constitutes an adjustment with respect to the
transferee partner only. Sec. 743(b) (flush language).
81 Recent legislation has limited the ability to transfer
losses among partners. In the American Jobs Creation Act of 2004
(AJCA 2004), Pub. L. 108-357, sec. 833(a) and (b), 118 Stat.
1589, Congress amended secs. 704(c) and 743 effective for
contributions and transfers after the date of enactment. With
respect to sec. 704(c), AJCA 2004 sec. 833(a) provides that the
built-in loss in contributed property is taken into account only
in determining the amount of items allocated to the contributing
partner; in determining the amount of items allocated to other
partners, the partnership’s basis in partnership property shall
be treated as being equal to its fair market value at the time of
contribution. With respect to sec. 743, AJCA 2004 sec. 833(b)
(continued...)
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