Skip to Content

Rule

Section 704(b) and Capital Account Revaluations

Document Details

Information about this document as published in the Federal Register.

Published Document

This document has been published in the Federal Register. Use the PDF linked in the document sidebar for the official electronic format.

Start Preamble

AGENCY:

Internal Revenue Service (IRS), Treasury.

Start Printed Page 25316

ACTION:

Final regulations.

SUMMARY:

This document contains final regulations relating to the capital account maintenance rules under section 704 of the Internal Revenue Code. These regulations expand the rules regarding a partnership's right to adjust capital accounts to reflect unrealized appreciation and depreciation in the value of partnership assets.

DATES:

Effective Date: These regulations are effective May 6, 2004.

Start Further Info

FOR FURTHER INFORMATION CONTACT:

Laura Nash at (202) 622-3050 (not a toll-free number).

End Further Info End Preamble Start Supplemental Information

SUPPLEMENTARY INFORMATION:

Background

On July 2, 2003, proposed regulations [68 FR 39498] relating to the capital account maintenance rules under section 704 of the Internal Revenue Code (Code) were published in the Federal Register. The proposed regulations expanded the circumstances under which a partnership is permitted to increase or decrease the capital accounts of the partners to reflect a revaluation of partnership property on the partnership's books. Specifically, the regulations proposed to allow revaluations in connection with the grant of an interest in the partnership (other than a de minimis interest) on or after the date these final regulations are published in the Federal Register as consideration for the provision of services to or for the benefit of the partnership by an existing partner acting in a partner capacity, or by a new partner acting in a partner capacity or in anticipation of being a partner. In addition, the notice of proposed rulemaking requested comments on other situations in which revaluations of partnership property should be permitted. No written or electronic comments were received in response to the notice of proposed rulemaking. No requests for a public hearing were received, and accordingly, no hearing was held.

Explanation of Provisions

This Treasury decision adopts the proposed regulations without change. The regulations apply to the grant of an interest in a partnership (other than a de minimis interest) on or after May 6, 2004, as consideration for the provision of services to or for the benefit of the partnership by an existing partner acting in a partner capacity, or by a new partner acting in a partner capacity or in anticipation of being a partner.

Special Analysis

It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It has also been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations, and because these regulations do not impose a collection of information on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to section 7805(f) of the Code, the notice of proposed rulemaking preceding these regulations was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small businesses.

Drafting Information

The principal author of these regulations is Laura Nash, Office of Associate Chief Counsel (Passthroughs and Special Industries), IRS. However, other personnel from the IRS and Treasury Department participated in their development.

Start List of Subjects

List of Subjects in 26 CFR Part 1

End List of Subjects

Adoption of Amendments to the Regulations

Start Amendment Part

Accordingly,

End Amendment Part Start Part

PART 1—INCOME TAXES

End Part Start Amendment Part

End Amendment Part Start Authority

Authority: 26 U.S.C. 7805. * * *

End Authority Start Amendment Part

End Amendment Part Start Amendment Part

1. Paragraph (b)(2)(iv)(

End Amendment Part Start Amendment Part

2. New paragraph (b)(2)(iv)(

End Amendment Part
Partner's distributive share.
* * * * *

(b) * * *

(2) * * *

(iv) * * *

(f) * * *

(5) * * *

(iii) In connection with the grant of an interest in the partnership (other than a de minimis interest) on or after May 6, 2004, as consideration for the provision of services to or for the benefit of the partnership by an existing partner acting in a partner capacity, or by a new partner acting in a partner capacity or in anticipation of being a partner.

* * * * *
Start Signature

Mark E. Matthews,

Deputy Commissioner for Services and Enforcement.

Approved: April 29, 2004.

Gregory F. Jenner,

Acting Assistant Secretary of the Treasury.

End Signature End Supplemental Information

[FR Doc. 04-10360 Filed 5-5-04; 8:45 am]

BILLING CODE 4830-01-P