Which of the following statements is correct?
A)A partnership may make an annual election to adjust the basis of its assets upon the sale of a partnership interest.
B)The Sec. 754 election applies to both sales and distributions.
C)The Sec. 754 election applies to only current and nonliquidating distributions.
D)A partnership can revoke a Sec. 754 election every 5 years.

Question

Quizplus · Accepted Answer

The Sec. 754 election applies to both sales and distributions. Options A, C, and D are incorrect. A partnership may make a Sec. 754 election when it is formed or when there is a transfer of an interest in the partnership. Once made, the election applies to both sales and distributions. This election is beneficial because it allows the partnership to adjust the basis of its assets when there is a transfer of an interest, which helps allocate the correct amount of depreciation or gains to the transferee partner. The election cannot be revoked without IRS consent.

Which of the Following Statements Is Correct