Revoking a Section 754 Election: New Form 15254, Tips for Avoiding Denial, Sufficient Reasons for Request

Description

A Section 754 election allows a partnership to step up the basis of its assets as outlined in Sections 734(b) and 743(b). Once made, the election is binding on all future transfers of partnership interests, sometimes requiring a step-down of partnership assets.

Before the Tax Act of 2017, a technical termination occurred when a sale or exchange of 50 percent or more of the capital or profits interest in a partnership within a 12-month period occurred. Since the repeal of IRC Section 708(b)(1)(B), there has been a significant increase in the number of applications for revocation of Section 754 elections. To handle the demand, the IRS released new Form 15254, Request for Section 754 Revocation.

A partnership must prepare and submit Form 15254 to the applicable IRS district director with reasonable cause for revocation. The instructions specifically state that "no application for revocation of a section 754 election shall be approved when the purpose of the revocation is primarily to avoid stepping down the basis of partnership assets upon a transfer or distribution. See Regulations section 1.754-1(c)." Tax professionals working with partnerships need to understand how to complete and submit new Form 15254 to increase the chances that the application for revocation will be accepted.

Listen as our panel of pass-through experts explains sufficient reasons for revocation, tips for increasing chances of acceptance, and when and how to prepare and submit the application for revocation.