A partnership may make an optional election to adjust the basis of its property under § 754. If such an election is in effect, the partnership:
A) Generally applies the election to transfers that take place at any later date unless the election is revoked.
B) Only adjusts the basis of its property for differences in basis between that of the partnership and a distributee partner if a transferor-transferee situation arises within two years after the distribution.
C) Increases the basis of similar retained assets when a distributee partner takes a basis that is greater than the partnership's basis in these assets, assuming the partnership does not have any receivables or inventory.
D) Decreases the basis of similar retained assets when the distributee partner recognizes gain on the distribution.
E) Decreases the basis of hot assets when a distributee partner recognizes a loss on a current nonliquidating) distribution.

Question

Quizplus · Accepted Answer

A § 754 election allows a partnership to adjust the basis of its property following certain transfers of partnership interests or distributions of property to partners. This adjustment applies to future transactions unless the election is revoked, ensuring that the partnership's tax basis in its assets reflects the economic reality of the partnership's current ownership structure.

A Partnership May Make an Optional Election to Adjust the Basis