754 Election after 706 Audit

California Society of CPAs

Home

Members

Calendar

Who's On

Welcome Guest ( Login | Register )

754 Election after 706 Audit

Rate Topic

Display Mode

Topic Options

Author

Message

Mary Kay Foss

Posted 1/6/2006 4:17:03 PM

Power Member

Group: Forum Members
Last Login: 3/12/2011 12:58:57 PM
Posts: 147, Visits: 823

Previous accountants made 754 election on 2002 Form 1065 (52% partner died in Oct 2002) which was filed 4/15/2003. On the 2002 return, the decedent's estate's share of a December sale of property was zero because of the 754 election and some depreciation was taken for 2+ months.

In November 2003 706 was filed taking a discount on the partnership. The starting part for the discounts was the fair market value figures used on the 1065 for the 754 election.

I was engaged to prepare the 2003 1065, I attached a note saying that although the 754 election was made we were not taking additional depreciation until the 706 was audited. Two additional pieces of property were sold in 2004.

The audit of the 706 is now complete. We'd like to amend only the 2003 and 2004 returns. Any suggestions on how to deal with the 754 election on amended returns and going forward? I feel I could come up with a practical solution but I'm wondering if anyone else has dealt with the problem.

Mary Kay Foss

Post #40

John R. Woodford

Posted 1/10/2006 8:35:04 AM

Member

Group: Forum Members
Last Login: 8/30/2010 8:41:47 AM
Posts: 33, Visits: 104

Mary Kay, I am not sure why there wasn't any gain in 2002 with regard to the decedent's interest. You had indicated that discounts were taken which would lead one to assume that when the basis adjustment was made, that there would be a difference between the basis determine under Section 743 and the sales price would have created a gain allocable to the decedent's interest. This would require amending 2002 as well as 2003 and 2004. As for 2003 and 2004 I would make the proper basis adjustment under Section 743, make my amendments and continue on. Hopefully I not missing something in the description of your client's situation.

Post #41

Mary Kay Foss

Posted 1/10/2006 1:23:29 PM

Power Member

Group: Forum Members
Last Login: 3/12/2011 12:58:57 PM
Posts: 147, Visits: 823

There was no gain with respect to 2002 because the 754 election equalled the gain. Client died in October, property sold in November. The 754 election assumed that the additional basis was equal to his share of the gain so only the remaining partners recognized gain on that particular sale.

Depreciation was taken for 2 months on the decedent's share of the increased property value in 2002. The K-1 was reported on Form 1041 for year ended 9/30/2003 which is being amended. I don't see why 2002 would need to be amended when all that would happen is a change to 1 schedule K-1 that goes into an amended return.

Also budget for amended returns won't cover a third year.

Mary Kay Foss

Post #42

« Prev Topic | Next Topic »

All times are GMT -8:00, Time now is 10:36am