754 Step-up in Basis - The Process

[Strongsilence-CPA]

I've got a client that could benefit from a 754. (She inherited her interest in 2022). But the partnerships tell me that I need to calculate (or hire someone to calculate) the FMV of the partnership interest. I understand that. With that number, what is next?  It seems to me that the CPA preparing the 1065 needs to record the step up and amend the 2022 1065.  So, I am anticipating that the partnership will not want to spend the money to do that.   Any guidance would be appreciated as I advise the relevant parties about how to do this.

[PhoebeRoberts · Accepted solution]

These are partnerships that already have a 754 election in place, and the request is, "tell us what your outside basis is and we'll run it through"? In that case, there's nothing you need to do. Your client will probably get an AAR with their 2023 K-1.

Or this is a partnership that has no 754 election in place, but has expressed a willingness to elect for 2022, pursuant to Reg Sec 301.9100-2? Client should carefully read the operating agreement for language to the effect of "the person making such request shall pay all costs incurred by the Company in connection therewith, including reasonable attorneys’ and accountants’ fees."

[Strongsilence-CPA]

@PhoebeRoberts 

Does the taxpayer (and holder of the partnership interest) sign the engagement letter authorizing the valuation services or do I?  I'm the preparer of the tax returns for the taxpayer so I am wondering why the CPA/ABV, CFA put my name on his engagement letter.

[PhoebeRoberts]

The person who's being engaged is generally the person who can answer that sort of question. "I think Client is the one engaging you" would be a completely reasonable comment.

If you're providing information on the interest being valued, they might be wanting you to sign off on representations they anticipate you'll make.