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.
Related tax terms
R&D Tax Credit
Federal credit for qualified research expenses, usable against payroll tax by startups.
Delaware Franchise Tax
Annual tax for Delaware corporations, often quoted wildly too high if calculated incorrectly.
Nexus (Sales Tax)
The connection with a state that triggers a tax-collection obligation.
QSBS (Qualified Small Business Stock)
Tax exemption for gains on qualifying startup stock held 5+ years.
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.
Got a finance question that needs more than a definition?
Talk to a real CFO. 30 minutes, no contract, free.
