Tax
§704(c) Allocations
Quick definition
Partnership rule for handling pre-existing built-in gain or loss on contributed property.
When a partner contributes property to a partnership with a basis different from FMV, §704(c) requires allocations of subsequent depreciation, amortization, gain, or loss to the contributing partner, to prevent shifting the pre-contribution built-in gain or loss to other partners. Three permitted methods: traditional, traditional with curative allocations, remedial. Interacts with §743(b) basis adjustments; track them as separate workpapers to avoid double-counting in §754 election scenarios.
Frequently asked questions
- What is §704(c) Allocations?
- When a partner contributes property to a partnership with a basis different from FMV, §704(c) requires allocations of subsequent depreciation, amortization, gain, or loss to the contributing partner, to prevent shifting the pre-contribution built-in gain or loss to other partners. Three permitted methods: traditional, traditional with curative allocations, remedial. Interacts with §743(b) basis adjustments; track them as separate workpapers to avoid double-counting in §754 election scenarios.
- Why is §704(c) Allocations important for startups?
- §704(c) Allocations is a tax concept that matters for startup founders because it directly affects fundraising readiness, financial decision-making, or operational discipline at the stage where mistakes are expensive to undo. Founders who understand it have a meaningfully easier time in diligence, board meetings, and investor conversations.
- What category does §704(c) Allocations belong to?
- §704(c) Allocations is a Tax term in the StartupCFO finance glossary, alongside other tax concepts that founders, CFOs, and accountants use in daily startup operations and reporting.
- Where can I learn more about §704(c) Allocations?
- Beyond this definition, see the related tax terms below, or explore StartupCFO's insights and tools that put §704(c) Allocations in context. For specific situations, talk to a fractional CFO who can walk through your numbers.
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