2015-09-05
The IRS recently published Notice 2015-54, which announced that it intends to issue regulations under Code §721(c) to ensure that, when a U.S. person transfers certain property to a partnership that has foreign partners related to the transferor, income or gain attributable to the property will be taken into account by the transferor either immediately or periodically.
Treas. Reg. §1.704-3(a)(1) provides that the purpose of Code §704(c) is to prevent the shifting of tax consequences among partners with respect to pre-contribution gain or loss. Code §704(c) allocations must be made using any reasonable method consistent with that purpose. Treas. Reg. §1.704-3 describes three methods of making Code §704(c) allocations that are generally reasonable, including: (i) the Traditional Method, (ii) the Traditional Method with Curative Allocations, and (iii) the Remedial Allocation Method.
We have created two situational charts of examples from the 704(c) regulations that demonstrate the Traditional Method and the Traditional Method with Curative Allocations. Images of the charts are shown below and links to PDFs of the charts are also available at:
Treas. Reg. §1.704-3(b)(2), Example 1 (Traditional Method)
Treas. Reg. §1.704-3(c)(4), Example 1 (Curative Allocations)
