Reg. § 1.721(c)-4 Acceleration events.
(a) Scope This section provides rules regarding acceleration events for purposes of applying the gain deferral method. of this section defines an acceleration event. of this section provides the consequences of an acceleration event. of this section provides the dates of applicability. For definitions that apply for purposes of this section, see .
(b) Definition of an acceleration event
(1) General rules Except as provided in this and (acceleration event exceptions), an acceleration event with respect to section property is any event that either would reduce the amount of remaining built-in gain that a U.S. transferor would recognize under the gain deferral method if the event had not occurred or could defer the recognition of the remaining built-in gain. An acceleration event includes a contribution of section property to another partnership by a section partnership and a contribution of an interest in a section partnership to another partnership. This applies on a property-by-property basis.
(2) Failure to comply with a requirement of the gain deferral method
(i) General rule An acceleration event with respect to section property occurs when any party fails to comply with a condition of the gain deferral method with respect to the section property.
(ii) Certain failures to comply with procedural and reporting requirements. Notwithstanding of this section, an acceleration event will not occur solely as a result of a failure to comply with a requirement of that is not willful. See and .
(3) Lower-tier partnership allocations Notwithstanding of this section, an acceleration event will not occur because of a reduction in remaining built-in gain in an interest in a partnership that is section property that occurs as a result of allocations of book items of deduction and loss, or tax items of income and gain.
(4) Deemed acceleration event A U.S. transferor may treat an acceleration event as having occurred with respect to section property by both recognizing gain in an amount equal to the remaining built-in gain that would have been allocated to the U.S. transferor if the section partnership had sold the section property immediately before the deemed acceleration event for fair market value and satisfying the reporting required by . In this case, see of this section regarding basis adjustments.
(c) Consequences of an acceleration event and of this section provide the consequences of an acceleration event with respect to section property, a partial acceleration event with respect to section property to the extent provided in , and a transfer described in section of section property to the extent provided in .
(1) U.S. transferor The U.S. transferor must recognize gain in an amount equal to the remaining built-in gain that would have been allocated to the U.S. transferor if the section partnership had sold the section property immediately before the acceleration event for fair market value. The U.S. transferor will increase its basis in its partnership interest by the amount of gain recognized. If the U.S. transferor is an indirect partner in the section partnership through one or more tiered partnerships, appropriate basis adjustments will be made to the interests in the tiered partnerships.
(2) Section 721(c) partnership The section partnership will increase its basis in the section property by the amount of built-in gain recognized by the U.S. transferor under of this section. Any tax consequences of the acceleration event will be determined taking into account the increase in the partnership's adjusted tax basis in the section property. If the section property remains in the partnership after the acceleration event, the increase in basis of the section property may be recovered using any applicable recovery period and depreciation (or other cost recovery) method (including first-year conventions) available to the partnership for newly purchased property of the same type placed in service on the date of the acceleration event. The section property will no longer be subject to the gain deferral method.
(d) Applicability dates This section applies to contributions occurring on or after August 6, 2015, and to contributions that occurred before August 6, 2015 resulting from an entity classification election made under that was effective on or before August 6, 2015 but was filed on or after August 6, 2015.
[T.D. 9891, 85 FR 3844, Jan. 23, 2020]