The IRS updated the instructions for Form 1065, U.S. Return of Partnership Income, adding additional disclosure requirement related to partners’ income adjustments related to IRC sections 704(c) and 743(b).

IRC section 704(c) and regulations thereunder provide rules pertaining to how income and loss should be allocated between partners related to built-in-gains or built-in-loss assets contributed by the partners.  The updated instructions expand on the additional information required to be provided in relation to how items of income, gain, loss, and deduction are affected by the application of section 704(c).  See the instructions to Line 20AA of schedules K/K-1.

IRC section 743(b) and regulations thereunder provide that in the case of a sale or exchange of a partnership interest for which a section 754 election is in place, a partnership shall adjust the basis of partnership property.  The purpose of the adjustment is to eliminate the difference between inside basis of the partnership property and the outside basis of the partnership interest for the transferee partner.  The updated instructions require income, gain, deduction or loss items relating to section 743(b) adjustments on Line 11F (in the case of positive adjustment) and on Line 13V (in the case of negative adjustment).  In addition, the updated instruction require explanation for detail of 743(b) basis adjustment on Line 20AH.

Link to Form 1065 instructions https://www.irs.gov/pub/irs-pdf/i1065.pdf.