The IRS issued final regulations[1] that adopt proposed regulations originally issued in October 2017[2] without making any changes eliminating the requirement that the election under IRC §754 included with a partnership income tax return be signed by a partner of the partnership.

An election under IRC §754, once made, requires that the basis of partnership property be adjusted:

For distributions, as provided in IRC §734 and
For transfers of a partnership interest, as provided in IRC §743.

This election cannot be revoked except as provided for in regulations issued by the IRS.[3]

Prior Regulations

Before this change, Reg §1.754-1(b)(1) provided, in its fourth sentence, the following requirements for the content and form of the election under IRC §754:

The statement required by this subparagraph shall (i) set forth the name and address of the partnership making the election, (ii) be signed by any one of the partners, (emphasis added) and (iii) contain a declaration that the partnership elects under section 754 to apply the provisions of section 734(b) and section 743(b).[4]

The signature requirement generally meant that the partnership needed to scan a copy of the election signed by a partner as a PDF to attach to an electronically filed partnership tax return.

Revised Regulations

The only change found in the new regulations is to replace the fourth sentence of Reg. §1.754-1(b)(1) with the following:

The statement required by this paragraph (b)(1) must set forth the name and address of the partnership making the election and contain a declaration that the partnership elects under section 754 to apply the provisions of section 734(b) and section 743(b).[5]

The clause that required the partners’ signature has been removed from this version.

Effective Date

The new fourth sentence will apply to taxable years ending on or after August 5, 2022. However, taxpayers may apply the fourth sentence (that is, not having to have a partner sign the election to the return) for taxable years ending before that date, duplicating what had been temporary relief granted when the proposed regulations were issued back in 2017.

[1] TD 9963, August 5, 2022 Federal Register publication date, announced August 4, 2022, https://public-inspection.federalregister.gov/2022-16271.pdf (retrieved August 4, 2022)

[2] REG-116256-17, 82 FR 47408, October 12, 2017

[3] IRC §754

[4] Reg. §1.754-1(b)(1) before being revised by TD 9963

[5] Reg. §1.754-1(b)(1) after being revised by TD 9963