Completed mid-year 100% stock purchase of an LLC. structure went from partnership to single member LLC. advisor says we need section 754 adjustment. can TT do that?

[Irene2805]

Yes - The 754 election statement can be attached to the partnership return when e-filed. 

TurboTax Champ ScruffyCurmudge offered this information to another TurboTax customer:

Regs. Sec. 1.754-1(b)(1)  [26 CFR § 1.754-1 https://www.law.cornell.edu/cfr/text/26/1.754-1] provides that an election under Sec. 754 to adjust the basis of partnership property under Secs. 734(b) and 743(b) shall be made in a written statement filed with the partnership return for the tax year during which the distribution or transfer occurs. For the election to be valid, the return must be filed no later than the time prescribed for filing the return (including extensions) for the tax year. Further, a valid Sec. 754 election must (1) set forth the name and address of the partnership making the election, (2) be signed by any one of the partners, and (3) contain a declaration that the partnership elects under Sec. 754 to apply the provisions of Secs. 734(b) and 743(b).

To attach a document to a business return click the Attachments icon in the top right of your screen.

[Rick19744]

Some additional facts would be helpful, but I don't believe any Section 754 election needs to be made even with the limited facts.

• If the partnership was A and B, did either A or B purchase the other membership units to become the sole owner?
• If the partnership was A and B, did C purchase all the units to become the sole owner?
• What type of assets did the partnership have; fixed assets, inventory, receivables, payables, method of accounting?

[Carl]

No facts have been provided to either support or dispute a SEC754 election at all.  It sounds to me more like your advisor may be creating income for their own advising business, by having you go around your elbow to get to your thumb, instead of taking the more direct and common sense route.

Basically, the partnership is dissolved and will file a final 1065 and issue final K-1's.  How that partnership is dissolved matters here.

 - Did Partner B sell their share of the partnership to Partner A?

 - Did Partner B give share share to Partner A?

 - Did Partner B abandon the partnership?

 - Did Partner B die, and in written form of some type (such as a will) leave their share to Partner A?

 - Did Partner B leave the partnership, taking their share of that parntership with them?

Once the partnership is disolved, Partner A creates a new single member LLC which is reported on SCH C as a part of their personal 1040 tax return. It can get complicated because depending on exactly how the partnership was disolved, the open date of the single member LLC might be the original open date of the partnership (even if that was years ago). Or it might be one day after the partnership was dissolved.

TurboTax can handle any of these scenarios. But more facts are needed before the correct path of action can be determined.

[Anonymous_]

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@Irene2805 wrote:

To attach a document to a business return click the Attachments icon in the top right of your screen.

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That icon/function is intended for the attachment of Form 8453 (the transmittal form). If you were to attach a different form, e-file would be inhibited. There is a method for attaching more than just Form 8453, but it involves merging two PDFs, which requires more advanced PDF software.

[frankphurst]

i purchased 100% membership interest from partner A and B.  I was not a partner previously.  so i assume that the partnership dissolved when i purchased the membership interest. 

Section 754 is mentioned in the purchase agreement in the allocation of purchase price.  it reads, "pursuant to section 754 of the IRS code, the allocation of the purchase price is as follows......with the purchase price divided among the following categories (FFE, Goodwill, Covenant not to compete, inventory and supplies, Franchise fee)

[frankphurst]

i purchased 100% membership interest from partner A and B.  I was not a partner previously. 

Section 754 is mentioned in the purchase agreement in the allocation of purchase price.  it reads, "pursuant to section 754 of the IRS code, the allocation of the purchase price is as follows......with the purchase price divided among the following categories (FFE, Goodwill, Covenant not to compete, inventory and supplies, Franchise fee)

[MaryK4]

I do not see a 754 adjustment because you purchased the entire partnership your basis so there is nothing to adjust.  See if this Forbes article makes it more clear: Tax Geek Tuesday: Tackling The Dreaded Section 754 Adjustment

@frankphurst

[Rick19744]

I agree that there is no Section 754.  Your basis is what you paid and there is no discrepancy between inside and outside basis with these facts.

A Section 754 comes into play had the partnership stayed in place but had a change.  In these cases, there is generally a discrepancy between inside and outside basis.  That is when Section 754 comes into play.  You can't have a Section 754 without a partnership and in your case there is no longer any partnership.

Attached is a link to Rev Rul 99-6 which deals with this issue and you are situation 2

https://www.irs.gov/pub/irs-drop/rr-99-6.pdf

The language of the purchase agreement is inaccurate. 

Additionally, the buyer and sell need to complete form 8594 for the purchase price allocation.  Each must attach this form to their respective tax return.  This form 8594 must agree between the buyer and seller.

https://www.irs.gov/pub/irs-pdf/f8594.pdf

https://www.irs.gov/pub/irs-pdf/i8594.pdf