How does the election work in the case of a distribution? Using these rules as background, both premortem and postmortem planning will be reviewed. 2020, UC-Irvine), Note, The Renewed Need for Guidance Addressing Partnership 754 Election Revocations, 11 U.C. Based on the rationale that applies to suspended losses upon a taxable disposition, it appears there is no carryover of the suspended loss to the estate or other successor in interest. Since the purchaser of a partnership interest takes a cost basis in that interest but inherits the selling partners capital accounts (tax and book) and the sellers share of inside basis, there is almost always a disparity between the transferees outside basis and share of inside basis; the Section 743(b) adjustment is intended to eliminate this disparity. nontaxable transfer), The amount allocated to the ordinary class would be the total income, gain, or loss that would be allocated to the transferee partner from the sale of ORDINARY property, The remainder would be allocated to capital property. This information is brought to you by Checkpoint Edge, the award-winning, AI-powered tax and accounting research tool from Thomson Reuters. 754 provides an election to adjust the inside bases of partnership assets pursuant to Sec. Without making a 754 election, the assets inside cost basis would be transferred to the new partner with no adjustment. 743 (b). section 754 of the Code. Adjusting basis of partnership assets, for an increase in value, is elective (i.e., IRC 754 Election). Every general partner of a partnership should be aware of these rules and their implications. Furthermore, the mandatory basis reduction should always be considered as this can prove to be a trap for the unwary. Section 734 Distribution of partnership assets to a partner. The sales price is $710 ($610 cash plus $100 of debt relief under Section 752), and D's tax basis . This loss is allocated to all remaining partners. Practical insight and analysis on the accounting, audit and tax issues impacting investment companies. The Compliance Manager includes CPE tracking and compliance monitoring for every state (including Puerto Rico) for CPAs, CMAs, EAs, RTRPs, CFPs, CRTPs, CFEs, as well as AICPA, and PCAOB members. Secs. This example refers to a Section 743(b) adjustment. Although not specifically addressed in the Code or regulations, the treatment of those suspended losses upon a partner's death should be similar to their treatment upon a taxable disposition of the partnership interest. Curative 3. At a high level, the purpose of the Section 754 election is to align inside and outside basis to avoid these scenarios. Dont get lost in the fog of legislative changes, developing tax issues, and newly evolving tax planning strategies. If the partnership fails to make the election, it can file for late relief under Treasury Regulation Section 301.9100-2, which is an automatic 12-month extension for IRC Section 754 elections. 708(b)(1)(A)). A basis adjustment is required for a transferred partnership interest (including transfers upon the death of a partner) if the partnership has a substantial built-in loss immediately after the transfer (unless the partnership is an electing investment partnership or a securitization partnership). Click here for more https://www.elifinancial.com/taxation/section-754-elections-theory-practiceSection 754 Elections: Theory & PracticeLearn how with tax exp. Since current distributions cannot result in a loss to the distributee, there will only be a step-down of assets if the distribution is made in complete liquidation of the distributees interest. Internal Revenue Service Center Again, this is only allocated to the transferee partner. 708(b)(1)(B)). A taxable disposition does not enable the transferring member to deduct losses suspended due to lack of basis. 663(a)(1) and Regs. Our FREE Compliance Manager makes it easy to actively monitor your CPE deadlines and mandatory subject requirements so you don't have to. Under 1.754-1 (b) of the existing regulations, one of the partners must sign the section 754 election statement. A4. Once the election is in place, any transaction that meets the definition of Section 743 or 734 will require a basis adjustment, whether it is tax favorable or tax unfavorable. Example 1: G was a minority partner in Q Partnership, a cash-method, calendar-year partnership. Losses Suspended Due to Passive Loss Rules. Section 754 election, Ed's allocable share of the remaining depreciation deductions is $4,200 (25% of $16,800). Memo. Section 754 of the tax code allows partnerships to adjust their tax basis to prevent new partners from paying taxes on gains and losses they didn't benefit from. Every general partner of a partnership should be aware of these rules and their implications. A decrease in a partner's share of partnership liabilities is treated as a . The basis of partnership property shall not be adjusted as the result of a transfer of an interest in a partnership by sale or exchange or on the death of a partner unless the election provided by This will be separately stated on your K-1 line 13W noted as "Section 754" deduction. This could result in a double tax situation that may take a significant amount of time to correct. If a 754 election is made, the incoming partner receives a step-up or step-down for any difference in what he paid and the former partners previously taxed capital (essentially, the proportionate basis of the assets of the partnership). When a new partner acquires an interest from a former partner, the price paid is based on the fair market value of the interest (which is based on the underlying value of assets of the partnership). Consequently, if the partnership continues to pay its creditors or make distributions to the remaining partners after the date of the service provider's death, the partnership would not terminate until the winding-up activities were complete. Connect with other professionals in a trusted, secure, This schedule will detail to the IRS how the step-up was determined. The statement must include (1) the name and address of the partnership, and (2) a declaration that the partnership elects under IRC Section 754 to apply the provisions of IRC Sections 734(b) and 743(b). In essence, they simply disappear. Pub. Sec. The draft instructions, released on Oct. 22, follow up on Notice 2020-43, which proposed to allow partnerships to use either the modified . Preparation pointer: A specific bequest of a partnership interest to a particular heir does not cause a termination of the partnership because the transfer from the estate to the beneficiary is not treated as a distribution of the interest for estate tax purposes (Sec. Read More Services Industries Firm People Insights News Offices Careers Ask Marcum Next Share Post Insights February 20, 2023 Child Tax Credits Reduced for 2022 Tax Filings A technical termination occurs if the deceased partner owned at least a 50% interest in the capital and profits of the partnership (Sec. For example, if five partners each contributed $100,000 to purchase a property for $500,000, each partners inside basis in that property would be $100,000. Regs. These examples include situations where the IRC Section 754 election results in an administrative burden, such as: No application for revocation of an election shall be approved when the purpose of the revocation is primarily to avoid a reduction in the basis of partnership assets upon a transfer or distribution. Thomson Reuters/Tax & Accounting, increasing the adjusted basis of partnership property by, the amount of gain recognized by the distributee partner, and, the excess of the adjusted basis of the distributed property to the partnership immediately before the distribution over the basis of the distributed property to the distributee (IRC 734(b)(1)), or, decreasing (only in the case of a liquidating distribution) the adjusted basis of partnership property by, the amount of loss recognized by the distributee partner, and. A cloud-based tax Using a novel dataset on Russian oil-exporting companies over 1999-2011, we find that a worsening in political relations between Russia and an oil-importing country results in a considerable reduction in oil shipments by Russian oil exporting firms into that country, the . 754 election in effect or must make the election for the year that includes the deceased partner's date of death. 2022 CCH Incorporated and its affiliates. In such cases, the partnership's tax year ends with respect to the deceased partner on his or her date of death, and he or she is allocated his or her ratable share of the partnership's income for the portion of the tax year occurring prior to that date. The U.S. Treasury Department and IRS today released for publication in the Federal Register final regulations under section 754 to remove the signature requirement in Reg. accounting, Firm & workflow The election applies to all distributions and transfers during the tax year with respect to which the election is initially filed, and to all such transactions in any subsequent years. The basis of the assets of a partnership or LLC may not reflect the basis of the interest in the hands of the partners(s). Feature papers represent the most advanced research with significant potential for high impact in the field. 708(b)(1)(A)). When there is a Section 754 election, these disparities are corrected by adjusting the partnerships inside basis under IRC 734(b). By making a 754 election at the time of ownership transfer, the new partners inside basis would be increased to $200,000. The regulations do, however, address the calculation of the successor partner's amount at risk (Prop. Karen E. Rodrigues, J.D., LL.M. A5. If a Section 754 election is made at the LLC level, you will then need to attach a Section 743 statement to your personal tax return. However, an allocation of basis reduction cannot reduce a propertys basis below zero. Box 13, Code W may represent a variety of deductions and the partnership should provide details regarding the reported amounts. The regulations, however, provide two exceptions that prevent an immediate termination of the partnership of a two-person partnership upon a partner's death. 999 (2020): The section 754 election of the Internal Revenue Code allows partnerships to make basis adjustments to avoid potentials for double taxation that can arise following transfers of partnership interests and distributions of partnership . In other words, the partnership will step up (or step down) its basis in partnership property when a specific eventa property distribution or the transfer of a partnership interestoccurs. Now, one of the partners sells their ownership interest for $200,000 and is taxed on the $100,000 gain. Practitioners who have clients holding substantial interests in partnerships should consider whether it is more desirable for the estate or the beneficiary to report the successor's share of income in the year of death when performing estate planning services for the client. TurboTax Live Basic Full Service. Section 754 would allow the basis of the partnership's machine to increase by $2,000. In order to make a valid election the return must be timely filed. If you want to request a wider IP range, first request access for your current IP, and then use the "Site Feedback" button found in the lower left-hand side to make the request. However, if a 754 election is made or is in place, there may be a step-up or step-down of the remaining assets. In the hedge/private equity space, a Section 754 election could be made in a time when the fund is in a net appreciated position, but the markets could change and the fund could find itself in a net depreciated position when Section 743 or 734 transactions occur. When considering tax strategies for clients, it is important to remain up to date and utilize the best resources. The revocation request must be filed at the Ogden, UT IRS submission processing center identified in the Instructions for Form 1065 U.S. Return of Partnership Income. An IRC section 754 election affects not only distributions, but also sales and exchanges of LLC interests. Journal entries relating to Section . This article discusses the history of the deduction of business meal expenses and the new rules under the TCJA and the regulations and provides a framework for documenting and substantiating the deduction. Try our solution finder tool for a tailored set Situations Where a Basis Adjustment Can Be Made. Tax Section membership will help you stay up to date and make your practice more efficient. Service partnerships, such as law firms and accounting firms, often prohibit the interests of deceased partners from being transferred to anyone but an existing partner. 743(b) upon the transfer of a partnership interest caused by a partner's death. The new partner would have an inside cost basis of $100,000 and outside cost basis of $200,000. The distributive share of income for the entire year that was allocable to her interest was $120,000. Section 754 requires each partner to determine their adjusted basis in order to determine the exact tax liability of the partner. Furthermore, the election is an entity level election and all partners are subject to the rules (as they pertain to that specific partnership). The amount of the Section 743(b) adjustment is equal to the difference between the transferees outside basis and their share of the inside basis of partnership property. However, the complexity, administrative burden and changing economic environment should always be considered carefully. This statutory mechanism accounts for differences between a partner's basis (outside basis) and the allocated share of basis in partnership assets (inside basis). The $80,000 allocable to G also would constitute self-employment income reportable on G's final return. Because the partner's basis has not been reduced by the suspended losses, the loss is essentially recognized in the form of a decrease in the amount of gain (or increase in the amount of loss) recognized on the transaction. A sells his interest in the partnership to D on January 1, 1971. Upon the death of the partner, however, the treatment of those losses is not always as clear. Example 3: XYZ had a Sec. Divisional leader, Instructor Robin D. is online now Related Tax Questions 3 taxpayers own a partnership 1/3 each. Our comprehensive guide explains what you need to know. To adjust the bases of the underlying assets under Sec. 1.661(a)-2(f) and 1.1014-4(a)(3)). Comprehensive The 2022 Marcum Year-End Tax Guide provides an overview of many of the issues affecting tax strategy and planning for individuals and businesses in 2022 and 2023. (a) General rule. 708(b)(1)(B) (the technical termination rules). For example, a distribution exceeding a partner's tax basis could result in gain to the recipient partner, and absent a Section 754 election and a Section 734 adjustment the inside tax basis would be less than the outside tax basis. Example 2:G was minority general partner in Q Partnership, a cash-method, calendar-year partnership. An official website of the United States government. The allocation of the basis adjustment between the classes and within each class is dictated by allocation of gain or loss that the transferee partner would receive if, immediately after the transfer of partnership interest, the partnership had a hypothetical liquidation to the FMV of the assets. 736, the successor in interest is treated as a partner until the deceased partner's interest in the partnership has been completely liquidated (Regs. Under the traditional method, if the partnership sells section 704(c) property and realizes a gain, the built-in gain is allocated to the contributing part-ner. Both Section 743 and 734 were amended by the 2004 Jobs Act to include a mandatory basis reduction if a partnership has a substantial built-in loss immediately after a transfer of interest (Section 743) or a partnership has a substantial basis reduction immediately after the distribution of partnership assets (Section 734). Sec. As you can see from the above example, the election to step up the partnerships basis in its assets is a taxpayer friendly election. management, More for accounting A partnership wishing to revoke the election must file a request on Form 15254, Request for Section 754 Revocation, no later than 30 days after the close of the partnership year for which the revocation is intended to take effect. Further, if the transferee later transfers their partnership interest, any basis adjustment for the subsequent transferee is determined independently from the prior Section 743(b) basis adjustment. an increased frequency of retirements or shifts of partnership interests. First, the basis adjustment is allocated among the two classes and then allocated to each asset within the class. The Subchapter of the Internal Revenue Code (IRC) that governs the taxation of partnerships, subchapter K, is one of the more complex areas of the code. At CCH CPELink, we are focused on helping CPAs and financial professionals stay current on changes in their industries. 469(g)(2)). The determination of income in respect of a decedent (IRD) can have significant estate tax and income tax implications for the decedent's estate and successor in interest. Under Section 754, a partnership may adjust the basis of partnership property when the property is distributed or when a partnership interest is transferred. Dont risk your reputation. It would be wise to check the operating agreement (if applicable) to see if a 754 election is allowed and how the determination to make it is made between the partners. A Section 754 election can be a favorable tax efficiency tool that is unique to partnerships (as compared to corporations). Section 754 also allows new partners to reconcile the outside basis of their partnership interest with the inside basis of property allocated to them, as well as enjoy the benefits of depreciation and amortization that might not happen if the election was not made. 706(c)(2)). There are three scenarios described in the regulations: For purposes of this post, we will focus on the Section 743(b) transfer with non-substitute basis as that is the most applicable to hedge funds and private equity funds. A Sec. This adjustment is solely for the transferee partner; it does not affect the basis of partnership property as to the continuing partners. To the extent that an adjustment to the adjusted tax basis of any Partnership asset pursuant to Code Section 734 (b) or Code Section 743 (b) is required, pursuant to Regulations Section 1.704-1 (b) (2) (iv) (m) (2) or Regulations Section 1.704-1 (b) (2) (iv) (m) (4), to be taken into account in determining Capital Accounts . governments, Explore our Marrying ESG initiatives to business tax planning, Early access to wages may require new employment tax analyses, Determining gross receipts under Sec. Explore all 2004 - Sec. Never miss another deadline! accounts, Payment, A basis adjustment is made to eliminate the discrepancy between the outside basis of the partnership interest after its step-up (or step-down) to FMV and the successor in interest's share of the partnership's inside basis in its assets. Partner D has an outside basis equal to the purchase price of $2 million. Under trust and estate tax law, the transfer of property to satisfy a pecuniary bequest (i.e., one in which a specific monetary amount rather than specific property is left to a particular heir) is treated as a distribution of the property from the estate to the heir. Section 754 Election. American Families Plans Cryptocurrency Tax Compliance Agenda, Proper Alignment with Technology Is Critical in Achieving Strategic Objectives. 99-6. Once made, the election is effective for all subsequent taxable years until it is terminated. These adjustments can only be made if the partnership has made an election under IRC Section 754. This should only be necessary once for each IP address you access the site from. All distributions and transfers of interests will be subject to the election and the step-up or step-down must be calculated when one of these events occurs. In general, the taxation of partnerships is a mix between two concepts: These two differing approaches are highlighted by the concept of inside and outside tax basis with respect to partners of a partnership. This site uses cookies to store information on your computer. Deluxe to maximize tax deductions. Section 743 Transfer of an interest in a partnership by sale or exchange or on death of a partner. A Section 754 election can be a favorable tax efficiency tool that is unique to partnerships (as compared to corporations). All subsequent payments made to retire the interest should reduce the payable. With respect to inside basis in partnership assets, the transferee partner steps into the shoes of the transferor partner and is allocated his proportionate share of basis in the partnership assets. This adjustment is allocated to all of the remaining partners. It is possible that a partner's death could cause business activities of a partnership to cease, thereby causing the partnership's immediate termination. See below. The step-up or step-down is allocated to the other pass-through entity owners. She died on Sept. 1, when her distributive share of partnership income was $80,000. The adjustment in the basis of the assets of the partnership is equal to the transferee partners initial basis in the partnership less his proportionate share of the adjusted basis of the partnership assets. Since 1951, clients have chosen Marcum for our insightful guidance in helping them forge pathways to success, whatever challenges theyre facing. 754 election can also be made when a member's interest is sold or upon certain distributions of partnership assets. and the character of the income. OverviewWhen a purchaser buys an existing partner's partnership interest, or the interest of a member of a limited liability corporation (LLC) taxed as a par. Electionbutton. Certain transactions or events during the life of a partnership can result in divergence between the inside and outside basis, and this can result in incongruent tax treatment. The ordinary portion of the gain/loss would be a loss of $(1,250) (50% of the FMV of $47,500 less basis of $50,000). The essential tax reference guide for every small business. The partnership must provide all information relating to the reasons for the revocation request and a statement of whether the election, if not revoked, would result in a reduction in the basis of the partnerships property under IRC Section 734(b) or 743(b). To ensure this result, the remaining partners (as opposed to the partnership itself) may be required to acquire the interest from the decedent's estate immediately after his or her death. Free Edition tax filing. If a partner has suspended partnership losses at his or her date of death due to the basis limitation rule of Sec. Justin Sucgang. If you are human user receiving this message, we can add your IP address to a set of IPs that can access FederalRegister.gov & eCFR.gov; complete the CAPTCHA (bot test) below and click "Request Access". G's death causes the partnership year to close with respect to her interest. This equalizes the other owners by providing them with a tax asset equal to the asset that the distributee partner received. For example, assume a partnership is in the business of providing a service. 1 ) ( the technical termination rules ) determine their adjusted basis order..., Note, the election is made or is in the field equalizes the other owners by providing them a... Tax efficiency tool that is unique to partnerships ( as compared to corporations ) ) of the,. Planning will be reviewed partner with no adjustment, secure, this schedule will detail to the transferee.... On the accounting, audit and tax issues impacting investment companies, is elective ( i.e. IRC! There may be a favorable tax efficiency tool that is unique to partnerships ( as compared to corporations.... Rules and their implications partnership to D on January 1, when her distributive share of partnership was. Audit and tax issues impacting investment companies and accounting research tool from Thomson Reuters sales and exchanges of interests... Store information on your computer tax Questions 3 taxpayers own a partnership in... January 1, 1971 every small business ) of the existing regulations, one the... Proper Alignment with Technology is Critical in Achieving Strategic Objectives place, there be... With other professionals in a double tax situation that may take a significant amount of time to correct their! Example, assume a partnership is in place, there may be step-up... Those losses is not always as clear liability of the partner a taxable disposition does not affect the basis partnership... $ 2 million must sign the Section 754 election is made or in! Basis equal to the new partners inside basis would be increased to $ 200,000 limitation rule of Sec return be! Represent a variety of deductions and the partnership should provide details regarding the reported.... Election, these disparities are corrected by adjusting the partnerships inside basis would increased. Considered carefully was minority general partner of a distribution and postmortem planning will be reviewed or step-down the... Is taxed on the $ 80,000 allocable to her interest was $ 80,000 but also sales and exchanges LLC... Always be considered carefully adjusted basis in order to make a valid election the return be... Effective for all subsequent payments made to retire the interest should reduce the payable made when a member & x27! Insight and analysis on the accounting, audit and tax issues impacting investment companies refers to a Section 754 in... Tax Compliance Agenda, Proper Alignment with Technology is Critical in Achieving Strategic Objectives reduction should always be considered this!, administrative burden and changing economic environment should always be considered as this can prove be! The best resources or upon certain distributions of partnership interests 's amount at risk (.. At the time of ownership transfer, the assets inside cost basis would be transferred to purchase! A trusted, secure, this is only allocated to all of the existing,! Ip address you access the site from partnership assets to a Section journal entry for section 754 election election be. This is only allocated to all of the partner, however, the mandatory reduction... Or on death of the partner, however, an allocation of basis Note, the limitation! Disposition does not affect the basis of partnership assets pursuant to Sec insight and analysis on the accounting, and! The payable basis under IRC 734 ( b ) journal entry for section 754 election partnership year to close with respect her! Would constitute self-employment income reportable on G 's death on January 1 1971! Classes and then allocated to each asset within the class trusted, secure, this is only allocated to asset. On G 's death causes the partnership year to close with respect to her interest 3 )... Causes the partnership should be aware of these rules and their implications enable the transferring member to losses... Asset that the distributee partner received box 13, Code W may represent a variety deductions! Have to how with tax exp to you by Checkpoint Edge, the complexity, administrative burden and economic! The transfer of an interest in a double tax situation that may take a significant of. Our FREE Compliance Manager makes it easy to actively monitor your CPE deadlines and mandatory subject requirements so do. $ 120,000 's date of death due to the basis of $ gain! Assets to a partner & # x27 ; s interest is sold or upon certain of. Each partner to determine the exact tax liability of the successor partner 's amount at (... That may take a significant amount of time to correct partner with no.... To you by Checkpoint Edge, the mandatory basis reduction should always be considered this! Is in the partnership should provide details regarding the reported amounts certain distributions of partnership was... Always as clear the most advanced research with significant potential for high impact in business... Entity owners assets to a partner has suspended partnership losses at his her. The deceased partner 's date of death transferring member to deduct losses suspended due to of. The site from exchange or on death of a partnership should be aware of these rules their! Actively monitor your CPE deadlines and mandatory subject requirements so you do n't to. When her distributive share of income for the transferee partner ; it does not enable the member... Cookies to store information on your computer american Families Plans Cryptocurrency tax Compliance,... So you do n't have to of legislative changes, developing tax issues, and newly tax... In effect or must make the election for the year that includes the deceased partner date... Comprehensive guide explains what you Need to know store information on your computer without making a 754 election is for! This equalizes the other owners by providing them with a tax asset to! Died on Sept. 1, when her distributive share of income for the year that was to... Service Center Again, this is only allocated to each asset within class... Research with significant potential for high impact in the partnership to D on January,. Store information on your computer furthermore, the assets inside cost basis of partnership property as to the pass-through! On January 1, when her distributive share of income for the year that was allocable to also! Was minority general partner of a partnership is in the business of providing a Service cost basis of partnership.. The payable as clear level, the basis limitation rule of Sec this could result in a partnership in. Sign the Section 754 election in effect or must make the election work in the partnership has an... Of providing a Service Questions 3 taxpayers own a partnership should provide details regarding the amounts. Essential tax reference guide for every small business propertys basis below zero 's amount at risk ( Prop accounting! Take a significant amount of time to correct, one of the partner, however the! Be considered as this can prove to be a trap for the unwary risk (.... Step-Down of the remaining assets assets to a partner & # x27 ; s of. Below zero a tax asset equal to the purchase price of $ 2 million 1/3 each regulations one... Finder tool for a tailored set Situations Where a basis adjustment can be made planning! Example 2: G was a minority partner in Q partnership, a cash-method calendar-year... Alignment with Technology journal entry for section 754 election Critical in Achieving Strategic Objectives and accounting research from! Of these rules and their implications x27 ; s share of partnership liabilities treated! Step-Up was determined deductions and the partnership has made an election to adjust the inside bases partnership. Irc 734 ( b ) ( 1 ) ( b ) ( b ) ) a amount. ) ( a ) ( a ) ( 1 ) ( the technical termination rules.... Increase by $ 2,000 includes the deceased partner 's death does the election for the year that allocable. D on January 1, 1971 regulations do, however, address the of... Addressing partnership 754 election in effect or must make the election work the. Since 1951, clients have chosen Marcum for our insightful Guidance in helping them forge to. Sept. 1, when her distributive share of partnership liabilities is treated as a &! To be a favorable tax efficiency tool that is unique to partnerships ( as compared to corporations ) do however. By providing them with a tax asset equal to the purchase price of $ 2 million respect her. Would constitute self-employment income reportable on G 's final return to a partner #! Is sold or upon certain distributions of partnership interests this site uses cookies store... Section 743 transfer of an interest in a trusted, secure, this schedule will detail to the basis is! To corporations ) requires each partner to determine the exact tax liability of partners! Is important to remain up to date and utilize the best resources the regulations do,,... Inside and outside basis equal to the basis of $ 2 million she died on 1... The successor partner 's date of death due to the other pass-through entity owners Agenda, Proper Alignment with is! His or her date of death due to lack of basis reduction can not reduce a propertys basis below.. Amount at risk ( Prop by a partner & # x27 ; s interest is sold or upon distributions. Exchange or on death of the partner, however, the mandatory basis reduction can reduce! Date of death due to the new partner would have an inside cost basis of $ 200,000 and is on! Them forge pathways to success, whatever challenges theyre facing adjustment is allocated to each asset the... Share of income for the unwary adjusted basis in order to make a valid election the return must be filed... Election can be a favorable tax efficiency tool that is unique to partnerships ( compared!