A Section 754 election is a tax provision allowing partnerships to adjust the basis of partnership property when there is a transfer of interest or distribution of property. This election can help equalize inside and outside basis, potentially providing tax benefits to the partners involved.
“Section 754 Election Gain” means the amount of gain recognized by a Protected Party under Code Sections 731 as a result of a Section 752 Distribution as a result of a Breach of Section 2(d). For the avoidance of doubt, the term Section 754 Election Gain shall include any gain that is solely attributable in whole or in part to a Section 752(b) Distribution to a Protected Party in excess of the Protected Party’s adjusted tax basis in its Protected Interest as a result of (i) an increase in the tax basis of Protected Property pursuant to Code Section 734 and a (ii) resulting reduction in the Built-In Gain that would have otherwise supported an allocation of debt to a Protected Party. Notwithstanding the foregoing or any other provision of this Agreement, Section 754 Election Gain shall not include any gain attributable to a Section 754 Election that is permitted to be made pursuant to the Existing JVA.
Section 754 Election Prohibition. During the Protected Period, the Company (i) shall not make a Section 754 Election (or similar election under state or local law) or cause to be made or consent to a Section 754 Election (or similar election under state or local law) with respect to any Tax Partnership in which the Company holds a direct or indirect interest, and that owns an interest in Protected Property; provided, however, that nothing in this Agreement shall prevent the Existing JV or its subsidiaries from making (or the Company or any of its subsidiaries from making with respect to or on behalf of the Existing JV or its subsidiaries) a Section 754 Election that is otherwise permitted under the Existing JVA.
Section 734 Adjustments After the Protected Period. After the Protected Period (but only if there has been no Early Termination Event), if the Company has in effect a Section 754 election that results in a Code Section 734(b) adjustment to the tax basis of any of the Protected Properties in any taxable year, the Company shall not file any income tax return reporting such Code Section 734(b) adjustment as giving rise to additional gain recognized under Code Section 731 to a Member in the same taxable year (i.e., because of a reduction in the liabilities allocated to the Member pursuant to Regulations Section 1.752-3) if the Protected Party Representative (at the Protected Parties’ Expense) timely provides to the Company a written opinion of nationally recognized tax counsel or an accounting firm, in form and substance reasonably satisfactory to the Company and Parent and their Auditors, with a conclusion at a comfort level of at least “more likely than not” that such position would be sustained if challenged. The sole obligation of Parent and the Company under this Section 5(c) shall be to report consistently with the opinion described in the preceding sentence and neither Parent nor the Company shall have any liability if the position in such opinion is not sustained if challenged.
With respect to the anticipated tax benefits of an election under Section 754 of the Internal Revenue Code (a “Section 754 Election”), Nerdy LLC is eligible to make a Section 754 Election regardless of the level of redemptions and whether Nerdy LLC is under the management and control of Nerdy Inc. Accordingly, the level of redemptions does not impact Nerdy LLC’s ability to make, and Nerdy Inc.’s ability to benefit from, a Section 754 Election.
Section 754 Election We have made the election permitted by Section 754 of the Code. That election is irrevocable without the consent of the IRS. The election generally permits us to adjust a common unit purchaser’s tax basis in our assets (“inside basis”) under Section 743(b) of the Code to reflect his purchase price. This election does not apply with respect to a person who purchases common units directly from us. The Section 743(b) adjustment belongs to the purchaser and not to other unitholders. For purposes of this discussion, the inside basis in our assets with respect to a unitholder will be considered to have two components: (i) his share of our tax basis in our assets (“common basis”) and (ii) his Section 743(b) adjustment to that basis. We have adopted the remedial allocation method as to all our properties. Where the remedial allocation method is adopted, the Treasury Regulations under Section 743 of the Code require a portion of the Section 743(b) adjustment that is attributable to recovery property that is subject to depreciation under Section 168 of the Code and whose book basis is in excess of its tax basis to be depreciated over the remaining cost recovery period for the property’s unamortized Book-Tax Disparity. Under Treasury Regulation Section 1.167(c)-1(a)(6), a Section 743(b) adjustment attributable to property subject to depreciation under Section 167 of the Code, rather than cost recovery deductions under Section 168, is generally required to be depreciated using either the straight-line method or the 150% declining balance method. Under our partnership agreement, our general partner is authorized to take a position to preserve the uniformity of units even if that position is not consistent with these and any other Treasury Regulations. Please read “—Uniformity of Units.”
Pursuant to an Internal Revenue Code Section 754 election, each future purchase or exchange by us is expected to result in our receiving an increase in the tax basis of tangible and intangible assets of Solaris LLC.
Section 754 Election. In its capacity as the sole member of StepStone Group Holdings LLC, which is the general partner of the Partnership, the Corporation shall ensure that, on and after the date of this Agreement and continuing throughout the term of this Agreement, each of (a) the Partnership, (b) its Subsidiaries listed on Annex A and (c) any other Subsidiary determined by the Partnership that is classified as a partnership for U.S. federal income Tax purposes, shall have in effect an election pursuant to section 754 of the Code (and any similar provisions of applicable U.S. state or local law). This Section 5.04 shall not apply with respect to Subsidiaries that StepStone Group Holdings LLC cannot cause to make a section 754 election or with respect to Subsidiaries that would not customarily make a section 754 election at the request of StepStone Group Holdings LLC.
Each Member shall, at its own expense, within thirty (30) days of request from the Company, furnish to the Company such information as is reasonably necessary to accomplish the adjustments in basis provided for under the section 754 election.
A Section 754 election refers to a provision under the Internal Revenue Code (IRC) that allows partnerships to adjust the basis of partnership property. This adjustment can help balance the differences between the inside basis (basis of partnership’s assets) and the outside basis (partner’s basis in their partnership interest) upon the sale or transfer of partnership interests, or upon the distribution of partnership property.
A partnership should consider making a Section 754 election in situations where there is a substantial difference between the inside basis and the outside basis. This generally occurs in cases of:
Making this election can prevent double taxation or ensure that the purchasing partner receives the correct step-up in basis, which reflects the purchase price of their partnership interest.
To make a Section 754 election, the partnership must attach a written statement to the partnership tax return for the year in which the election is to be effective. The statement should:
This election must be filed by the due date, including extensions, of the partnership tax return for the tax year in which the election is to be made.
Example of a Section 754 Election Statement:
“The ABC Partnership hereby elects under IRC Section 754 to apply the provisions of Sections 734(b) and 743(b) for the taxable year ending December 31, 2023. ABC Partnership, 123 Main Street, Hometown, USA. [Signature of Partner]”
Section 754 elections are typically found in partnership agreements or operating agreements for limited liability companies (LLCs) treated as partnerships. These contracts often contain provisions outlining when and how the partnership should make such an election, along with the decision-making process for assessing the need for a Section 754 election.
In some cases, buy-sell agreements within a partnership may also reference Section 754 elections to address the tax consequences of transferring partnership interests upon certain triggering events, such as the death of a partner or the exit of a partner from the partnership.
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