tax-law nevada partnership
Must a partnership agreement contain 754 provisions in order to make a 754 election?
<p>I am a limited partner in a nearly 40 year old limited partnership agreement governed by the laws of the state of Nevada.  The partnership agreement is silent with respect to 754 elections.  Can this partnership make 754 elections on behalf of its limited partners or must the partnership agreement state that the partnership will make (or consider) 754 election requests?  </p>

<p>Given that the partnership agreement is silent with respect to 754 elections, can the general partner refuse to make a 754 election?</p>

<h1>Short Answer</h1>
<p>The general partner who is the tax matters partner can refuse to make a § 754 election if he (it) wishes, and can make a § 754 election if he (it) wishes, and there is nothing you can do about it legally either way.</p>
<h1>Long Answer</h1>
<p>An Internal Revenue Code § 754 election (which pertains to the tax treatment of certain transactions related to a deceased partner's interest that require graduate school level tax knowledge to really fully understand but are generally good for the deceased partner's estate) does not need to be in any particular type of document.</p>
<p>A partnership agreement would be a common place to contain a statement regarding this tax election, but it could also be placed in a resolution adopted by the partnership, or simply be contained on a tax form. Its absence from the partnership agreement does not prohibit making one, but does not compel the partnership to make this election either.</p>
<p>In the absence of a provision in the partnership agreement, ordinarily, the decision of a partnership regarding whether or not it should make a § 754 election would be vested in the tax matters partner for the partnership, who would be a general partner (some limited partnerships have just one general partner, others have more than one), by the partnership agreement that generally vests all tax election decisions in the tax matters partner. If the partnership agreement is silent on the authority of the tax matters partner, the person designated by the partnership as tax matters partner in filings with the IRS will have the authority to make or not make elections under tax law for the partnership by operation of law.</p>
<p>While the tax matters partner would ordinary have the authority to make a § 754 election in the absence of a binding partnership agreement or resolution of the partnership governing this issue, if there is no express statement one way or the other, the choice would generally be vested in the discretion of the tax matters partner. And, since the election is made for the partnership as a whole, that has to be made either for everyone, or for no one at any given point in time.</p>
<p>While a general partner owes signifiant duties, including some fiduciary duties to act in the best interests of the partnership, to the limited partners, because a § 754 election could be desirable for some partners (usually this is a plus for the decedent's estate, for example) and undesirable for others (sometimes this is not optimal for at least some of the non-deceased partners in at least some situations), it would probably not be a breach of the tax matters partner's fiduciary or other duties to the limited partners to decline to make a § 754 election. So, there is no way that a limited partner could legally compel the tax matters partner to make a § 754 election.</p>
