743 revaluation - Add to Basis?

[Corduroy Frog]

Asked on another forum with no answer, other than a possible implication that I didn't know the difference between inside and outside basis.  Also have researched 743 in TTB, with lots of information but no straight answer.  So I'll bring the question and thanks in advance for reading.

A partnership was formed in 1962, and after lo these many years, beneficiaries are now the partners (11 of them). When the last of original partners died, the partnership revalued everything at stepped-up values.

Question: Do the 11 partners get a positive uptick to their basis as a result of the revaluation? The revaluation is not really "income", certainly not taxable income or tax exempt income either.

If one of the remaining 11 partners sell, and cannot increase his(her) basis, there will be a capital gain out of proportion to reality.  I've seen a number of worksheets designed to calculate a partners' basis but nothing which address section 743.
 

 

[DANRVAN]

5 hours ago, Corduroy Frog said:

Do the 11 partners get a positive uptick to their basis as a result of the revaluation?

 

5 hours ago, Corduroy Frog said:

I didn't know the difference between inside and outside basis. 

Why would partners who were not a part of the estate of deceased partner get a a step up in basis?

Seems to me you do not understand the difference between inside and outside basis and why section 743(b) is used to equalize.

 

5 hours ago, Corduroy Frog said:

If one of the remaining 11 partners sell, and cannot increase his(her) basis, there will be a capital gain out of proportion to reality.

What makes it out of proportion to reality?

[Corduroy Frog]

1 hour ago, DANRVAN said:

 

Why would partners who were not a part of the estate of deceased partner get a a step up in basis?

 

All 11 partners were part of the estates of the 3 deceased original partners.

[DANRVAN]

10 hours ago, Corduroy Frog said:

When the last of original partners died, the partnership revalued everything at stepped-up values.

 

10 hours ago, Corduroy Frog said:

Do the 11 partners get a positive uptick to their basis as a result of the revaluation?

No, only the heirs of the final deceased partner.  Nothing changed for the rest.

 

[Corduroy Frog]

Thank you DanRVan.  You are good to respond to questions with helpful knowledge.

[Bart]

10 hours ago, DANRVAN said:

 

No, only the heirs of the final deceased partner.  Nothing changed for the rest.

 

The heirs of the other two partners should have gotten a step up at the date of death of the partner from whom they inherited

[Corduroy Frog]

Thanks to all.  The 3 original partners from 1962 had 11 children who ultimately became partners.  The first of the original partners died in 2012 and the last one's spouse died in 2014.  I didn't apply the 743 for this partnership until 2014.

Technically, the spouse that survived the original partner should have received stepped-up treatment when her husband died.  She was not joint member of the partnership, but became so when she inherited his share.

Mercifully, all property in the partnership was sold, and final distribution of $$ occurred in 2022.

[Sara EA]

I had a partnership with eight partners.  As each one died, his or her heir got stepped-up basis on the value of their partnership interest at the time of death.  By the time the last one died, there were eight partners including a trust with 12 beneficiaries!  Actually, by the time I inherited this return, several partners had already died and basis had never been adjusted.  Nothing had been sold, and there were always profits, so no returns had to be fixed.  I spent a great deal of time making spreadsheets to calculate the correct basis for each partner.  That's what you'll have to do.  Make sure you charge for it!  (Alas, in my case, our firm had handled this partnership so it was our fault that basis had never had been reconfigured, so I couldn't add a couple of thou to my fee.)

[DANRVAN]

On 8/25/2023 at 5:51 PM, Corduroy Frog said:

apply the 743 for this partnership until 2014.

What do you mean by "apply the 743 for this partnership until 2014"?  Did you file a timely 754 election?

 

On 8/24/2023 at 12:45 AM, Corduroy Frog said:

When the last of original partners died, the partnership revalued everything at stepped-up values.

But that would not effect the shares of partner that died in 2012; and they would not have received any benefit from an increase in depreciation.

 

On 8/24/2023 at 12:45 AM, Corduroy Frog said:

Question: Do the 11 partners get a positive uptick to their basis as a result of the revaluation?

The partnership is not "revalued"; only the inside basis of the inherited shares.

I will be straight forward.  Sounds to me like you have been practicing in an area you are not qualified in.  That would be an ethical conduct violation if you were a CPA.

On 8/25/2023 at 5:51 PM, Corduroy Frog said:

all property in the partnership was sold, and final distribution of $$ occurred in 2022.

For partner who was entitled to 743(b) but did not receive it, the disparity between inside and outside basis usually equalizes when assets are sold and the partnership is dissolved in the same year.

[Corduroy Frog]

On 8/31/2023 at 6:47 PM, DANRVAN said:

The partnership is not "revalued"; only the inside basis of the inherited shares.

[CFrog]  Thank you.  That was the simple answer I was looking for when I brought the question.

I will be straight forward.  Sounds to me like you have been practicing in an area you are not qualified in.  That would be an ethical conduct violation if you were a CPA.

 

 

DAN, be straight forward all you care to.  I would much rather deal with honest people than a smiley face with no substance.  I am often criticized.