Built-In Gain and Contributed Property in Partnerships: Section 704(c) Explained

Built-in gain is the difference between what a piece of property is worth and what the contributing partner actually paid for it, measured at the moment that partner hands the property over to a partnership. Say a partner owns a building she bought years ago for 400 thousand dollars, and today it is worth one million dollars. Her tax basis in that building is 400 thousand, but its fair market value is one million. The 600 thousand dollar spread between the two numbers is the built-in gain. It is gain that already accrued while she held the property personally, before the partnership ever existed. The tax law cares about this spread because it does not want that pre-contribution appreciation to get spread around to the other partners who had nothing to do with creating it. The IRS lays out the framework for how partnerships handle contributed property in Publication 541, Partnerships, which is the document we reach for first on any contribution question.

The reason this matters comes down to a quirk in how partnership contributions work. Under the general rule, when a partner contributes property to a partnership in exchange for a partnership interest, nobody recognizes gain or loss on the transfer. The partner does not pay tax. The partnership does not pay tax. The transaction is tax-free at the moment it happens. But the gain does not disappear. It gets deferred, and the partnership takes the property with a carryover basis, meaning the partnership steps into the contributing partner’s shoes and keeps her old 400 thousand dollar basis. So now you have a building sitting on the partnership books at a tax basis of 400 thousand, even though everyone agrees it is worth a million.

This creates two different sets of numbers that follow the property around, and keeping them straight is the whole game. The first set is the tax basis, which is what the IRS uses to figure out gain, loss, and depreciation deductions. That number is 400 thousand. The second set is the book value, sometimes called the section 704(b) book value, which is what the property is worth for purposes of figuring out who owns what economically inside the partnership. That number is one million. The partner gets credited with a capital account of one million because that is what she really brought to the table. But for tax purposes, the partnership is stuck with 400 thousand of basis. The 600 thousand gap is the book-tax disparity, and it is the source of nearly every complication that follows. The partnership itself reports all of this each year on the partnership return, Form 1065, which is where the capital accounts, the balance sheet, and the contributed-property figures all live.

Think about what happens if the partnership turns around and sells the building the next day for one million dollars. For book purposes, there is no gain. The building was on the books at one million and it sold for one million, so the partners’ capital accounts do not move. But for tax purposes, there is a 600 thousand dollar gain, because the tax basis was only 400 thousand. Somebody has to report that 600 thousand of taxable gain on a tax return. The question of who reports it is exactly what the contribution rules answer, and the answer is that it should fall entirely on the partner who contributed the appreciated property, not on her partners.

The same logic runs in reverse for property that has gone down in value. If a partner contributes property with a tax basis of 800 thousand but a current value of 500 thousand, there is a built-in loss of 300 thousand. The rules track built-in loss the same way they track built-in gain, and they make sure the loss stays with the partner who actually suffered the economic decline. There are additional anti-abuse rules layered on top of built-in losses to stop people from shifting losses to partners who could use them, but the starting point is the same book-tax disparity concept.

Contributed property is simply any property a partner transfers to the partnership in exchange for an interest, whether that is real estate, equipment, marketable securities, intellectual property, or an ownership stake in another business. The character of the property matters for later questions about depreciation and ordinary versus capital gain, but the threshold concept is identical across all of them. You measure value, you measure basis, you find the disparity, and you tag the property so the partnership knows it carries a built-in gain or loss that belongs to one specific partner. Partnerships report each partner’s share of income and separately stated items on the Schedule K-1 of Form 1065, and the contributed-property tagging is what makes those allocations come out right.

For business owners forming a partnership or joint venture, the practical takeaway is that you cannot just throw assets into the pot and split everything evenly going forward. The moment one partner contributes something worth more than its tax basis, the partnership inherits a tax problem that has to be managed for years, sometimes decades if the property is depreciable real estate. We see this constantly with real estate ventures where one partner brings the land or building and another brings cash. The land carries a fat built-in gain, and if nobody plans for it, the cash partner can end up paying tax on appreciation he never enjoyed. Getting the contribution structured and documented correctly at formation is the kind of work our tax strategy consulting service handles, because fixing it after the fact is far harder than doing it right the first time.

One last point that trips people up. The built-in gain is frozen at the contribution date. It does not grow or shrink as the property keeps changing value inside the partnership. If that building keeps appreciating to 1.3 million after the contribution, the original 600 thousand of built-in gain still belongs to the contributing partner, but the new 300 thousand of post-contribution appreciation gets shared among all the partners according to their normal profit split. So the partnership has to remember not just that there is a built-in gain, but exactly how large it was on day one. That frozen number is what every later allocation traces back to, and it is why clean bookkeeping at formation, the kind we set up through our bookkeeping service, saves enormous headaches down the road.

Section 704(c) of the Internal Revenue Code is the rule that takes the book-tax disparity on contributed property and makes the contributing partner bear the tax consequences of it. The statute says that income, gain, loss, and deduction with respect to property contributed to a partnership shall be shared among the partners so as to take account of the difference between the basis of the property and its fair market value at the time of contribution. In plain English, the partner who brought in the appreciated property has to eat the built-in gain when it eventually shows up as taxable income. The other partners are protected from it. The IRS explains the general operation of these allocations in Publication 541, which every preparer working on a partnership with contributed property should have open.

The why behind this rule is about fairness and about stopping a specific kind of tax shifting. Picture a partnership with two equal partners. Partner A contributes a building with a 600 thousand dollar built-in gain. Partner B contributes 1 million dollars in cash. Without any special rule, the partnership would just allocate all income, gain, and loss fifty-fifty, because the partners are equal. So when the partnership sells the building and recognizes that 600 thousand of tax gain, each partner would report 300 thousand. But that is deeply unfair to Partner B. He contributed clean cash. He never owned the building during the years it appreciated. Yet he would be picking up 300 thousand of taxable gain that economically belongs entirely to Partner A. Partner A, meanwhile, would have successfully shifted half her pre-contribution gain onto someone else and cut her own tax bill in half. Section 704(c) exists to slam that door shut.

The mechanism is what tax people call a special allocation. Instead of splitting the building’s tax gain fifty-fifty, the partnership specially allocates the first 600 thousand of tax gain entirely to Partner A. Only gain above that built-in amount, representing appreciation that happened after the contribution while both partners were in the deal, gets split fifty-fifty. So if the partnership bought the building in at one million and later sold it for 1.1 million, the total tax gain is 700 thousand. The first 600 thousand goes 100 percent to Partner A under 704(c). The remaining 100 thousand of post-contribution appreciation splits fifty-fifty, 50 thousand to each. That outcome matches economic reality. Partner A pays tax on the gain she built up before joining, plus her share of what came after. Partner B pays tax only on his share of post-contribution growth. Nobody gets stuck with somebody else’s old gain.

This principle reaches well beyond a simple sale. It also governs depreciation. When contributed property is depreciable, the book-tax disparity means there is more book depreciation available than tax depreciation, because book depreciation runs off the higher fair market value while tax depreciation runs off the lower carryover basis. Section 704(c) requires the partnership to allocate that limited tax depreciation in a way that, as far as possible, fixes the disparity. The non-contributing partners generally get first claim on the available tax depreciation so their book and tax numbers stay aligned, and the contributing partner absorbs the shortfall. Partnerships compute and report depreciation on Form 4562, and the 704(c) layer sits on top of that, redirecting the deductions to the right partners.

The rule is mandatory, not optional. Some partners assume that if everyone agrees to split things evenly, they can ignore 704(c). They cannot. Section 704(c) applies by operation of law to any property contributed with a built-in gain or loss, and the partnership is required to use a reasonable method to make the allocations. A partnership that ignores it is filing an incorrect return. The partnership reports all of this through Form 1065, the partnership return, and the special allocations flow out to each partner on their Schedule K-1. If the partnership skips the 704(c) work, the K-1s are wrong, the partners report the wrong income, and the whole structure is exposed on audit.

There is a second, narrower piece of 704(c) that catches a lot of people by surprise, and it deals with what happens when the contributed property leaves the partnership or the contributing partner takes other property out. Sections 704(c)(1)(B) and 737 are anti-abuse rules that prevent partners from using the partnership as a way to swap appreciated property tax-free. If the partnership distributes the contributed property to a different partner within seven years, or if the contributing partner receives a distribution of other property within seven years, the built-in gain can be triggered and taxed even though no sale to an outsider ever happened. These are the so-called mixing-bowl rules, and they exist because without them, two people could each contribute appreciated property to a partnership, wait a bit, and then each take the other person’s property out, accomplishing a tax-free exchange that the law does not allow. We cover those traps in detail in another answer, but the point here is that 704(c) is not just about allocating gain on a sale. It is a whole regime designed to keep pre-contribution gain locked to the partner who created it.

For anyone setting up a partnership where the partners are bringing in unequal property, the reason to care about 704(c) is dollars. Done right, it protects the cash partner from absorbing the property partner’s old gain, and it makes sure the property partner is not getting a free ride. Done wrong, or ignored, it produces wrong tax returns, audit risk, and partners who end up paying tax they should never have owed or escaping tax they should have paid. The partnership agreement should spell out the 704(c) method, the capital accounts should be maintained correctly, and the K-1s should carry the right numbers every year. That is exactly the kind of structural detail we build in when we set up a partnership through our tax strategy consulting engagement, because a partnership agreement that is silent on 704(c) is a lawsuit and an audit waiting to happen. And once the structure is set, keeping the books so the allocations actually compute correctly each year is where our bookkeeping work earns its keep.

The regulations under Section 704(c) give a partnership three approved ways to make the special allocations that account for built-in gain. They are the traditional method, the traditional method with curative allocations, and the remedial method. All three are aimed at the same goal, which is to make the non-contributing partners whole by giving them tax results that match their book results, so they are not stuck with the contributing partner’s pre-contribution gain. Where they differ is in how aggressively the partnership chases that goal when the available tax items are not large enough to do the job. The choice of method belongs to the partnership, and it can pick a different method for each piece of contributed property. The framework lives in the partnership rules summarized in Publication 541, and all of it ultimately gets reported through Form 1065.

The traditional method is the default and the simplest. Under it, the partnership allocates tax items first to the non-contributing partners up to the amount of their book items, and whatever tax item is left over goes to the contributing partner. On a sale, that means the contributing partner gets allocated the built-in gain. On depreciation, the non-contributing partners get the tax depreciation that matches their book depreciation. The catch with the traditional method is something called the ceiling rule, which says a partnership can never allocate more of a tax item to a partner than the partnership actually has. You cannot hand out tax depreciation you do not have, and you cannot allocate more tax gain than the property actually generated. When the built-in gain is large and the tax basis is small, the ceiling rule can leave the non-contributing partners short, with book deductions they cannot fully match on the tax side. That shortfall is a distortion the traditional method simply tolerates. It does not fix it.

Here is a concrete picture of the ceiling problem. A partner contributes a building with a fair market value of one million and a tax basis of 100 thousand, so 900 thousand of built-in gain, and the building has 100 thousand of remaining tax depreciation spread over its life. The book value for the partnership is one million, so book depreciation runs off one million. In a given year, book depreciation might be 50 thousand, but tax depreciation off the 100 thousand basis might be only 5 thousand. The non-contributing partner is entitled to his full share of book depreciation, say 25 thousand, but under the ceiling rule the partnership only has 5 thousand of tax depreciation to give him. He is short 20 thousand. Under the traditional method, that is just his tough luck. The distortion sits there, unfixed, year after year, and it gradually shifts tax burden in ways the partners may not have intended.

The traditional method with curative allocations is the first fix for the ceiling problem. It lets the partnership make up the shortfall by reallocating other tax items of the same character. If the building above generates a ceiling-rule shortfall of 20 thousand in tax depreciation for the non-contributing partner, the partnership can cure it by specially allocating 20 thousand of some other tax deduction, or by shifting other ordinary income away from him, as long as the curative item has the same tax character as the item that fell short. Depreciation is ordinary in character, so the cure has to come from ordinary items, not capital gain. The limitation is real, though. Curative allocations only work if the partnership actually has other tax items lying around to reallocate. A partnership with a single asset and not much other income may have nothing available to cure with, in which case the curative method delivers no more relief than the traditional method. The cure has to come from items the partnership genuinely has.

The remedial method is the most powerful and the only one guaranteed to eliminate the distortion completely. Instead of relying on existing tax items, the remedial method lets the partnership create offsetting tax items out of thin air. When the ceiling rule produces a shortfall, the partnership invents a remedial tax deduction and allocates it to the non-contributing partner, then invents an equal and offsetting remedial tax income item and allocates it to the contributing partner. The two remedial items net to zero across the partnership, so total partnership taxable income is unchanged, but the contributing partner picks up extra income and the non-contributing partner gets the full deduction he is economically entitled to. The remedial method also has its own specific way of computing book depreciation, splitting the property into a piece equal to the tax basis that depreciates on the normal schedule and a piece equal to the built-in gain that depreciates over a fresh recovery period. Because it manufactures the items it needs, the remedial method always fully fixes the book-tax disparity, which is why it is the method of choice for large real estate partnerships and any deal where getting the allocations exactly right is worth the extra complexity. Whichever method applies, the depreciation underlying it gets reported on Form 4562, and the resulting allocations flow to each partner on the Schedule K-1.

So how do you choose among the three. The traditional method is fine when the built-in gain is modest, the tax basis is healthy relative to value, and the ceiling rule is unlikely to bite hard. It is the least work and the least cost. The curative method is a middle option when there is some ceiling distortion but the partnership has other tax items it can use to patch the holes. The remedial method is the right call when the built-in gain is large, the property is depreciable over a long life, and the partners want certainty that the cash partner will not absorb the property partner’s gain. The tradeoff is complexity and cost. The remedial method requires careful tracking of the manufactured items every year for the life of the property, which is real recordkeeping work. We generally steer clients toward the remedial method on big real estate deals because the dollars at stake dwarf the extra accounting cost, and toward the traditional method on smaller contributions where the distortion is minor and the simplicity is worth more than perfection.

The decision is not just a tax technicality. It changes how much tax each partner pays and when, and once the property is in the partnership the method is generally locked in for that property going forward. That is why the partnership agreement should state the chosen method for each contribution explicitly, rather than leaving it to whoever prepares the return to guess. Picking the method, drafting it into the agreement, and then maintaining the books so the allocations compute correctly is exactly the structural work our tax strategy consulting team handles at formation. The method choice also drives the year-to-year recordkeeping, because the remedial and curative methods both require tracking figures the books have to carry for the life of the property, which is part of why we pair the structuring work with clean bookkeeping from day one. Get it wrong and a cash partner can end up subsidizing a property partner’s tax bill for the entire life of a thirty-nine-year building. Get it right and every partner pays tax on exactly the gain that belongs to them, not a dollar more.

Built-in gain has to be tracked from the day the property is contributed until the day the disparity finally washes out, and that tracking lives in two places: the partnership’s books and the partnership tax return. The partnership return is Form 1065, and it carries several pieces of information that exist precisely to keep built-in gain visible. The starting point is the capital account. When a partner contributes appreciated property, the partnership credits her capital account with the property’s fair market value, not its tax basis, while recording the asset on the tax books at carryover basis. That single entry creates the book-tax disparity, and the partnership has to maintain capital accounts under the section 704(b) rules so the disparity stays measurable for the life of the property. The IRS describes how partnerships keep these accounts and report partner information in Publication 541.

On the return itself, Schedule M-2 reconciles the partners’ capital accounts on the tax-basis method, and Schedule L shows the balance sheet. But the real workhorse for built-in gain is the Schedule K-1 the partnership issues to each partner. The Schedule K-1 reports each partner’s distributive share of income, deductions, credits, and a long list of separately stated items, and it now includes specific reporting on contributed property with built-in gain or loss. The partnership must report, partner by partner, the net built-in gain or loss that remains on property each partner contributed. This is sometimes called the section 704(c) information, and it appears in the K-1 reporting along with the partner’s beginning and ending capital accounts on the tax-basis method. The official description of what the K-1 carries is on the IRS page About Schedule K-1, Form 1065, and the partner uses that information to keep their own outside basis records straight.

The tax-basis capital account reporting deserves special attention because it changed the game for built-in gain visibility. Partnerships are required to report partner capital accounts using the tax-basis method on the Schedule K-1. Under that method, a contributing partner’s capital account starts at the tax basis of what she contributed, not the fair market value. So when our example partner contributes a building worth one million with a 400 thousand tax basis, her tax-basis capital account starts at 400 thousand even though her economic, or 704(b) book, capital account is one million. The 600 thousand gap between those two numbers is the built-in gain, sitting right there in the difference between the two capital account measures. The K-1 also asks the partnership to flag whether the partner contributed property with a built-in gain or loss during the year, which puts the IRS on notice that 704(c) allocations should be running.

Year by year, the partnership has to keep recalculating the remaining built-in gain as it gets chipped away. Every time the partnership takes depreciation on the contributed property, a slice of the disparity closes, because book depreciation and tax depreciation grind down the book value and the tax basis at different rates. The partnership tracks the remaining 704(c) gain on each property and reports the current figure. When the property is finally sold, the remaining built-in gain gets allocated entirely to the contributing partner under whichever 704(c) method the partnership elected, and that allocation shows up on her K-1 as her distributive share of the gain. The other partners pick up only their share of post-contribution appreciation. The partner who contributed the property then reports her share on her own return, with a capital asset sale flowing through to Schedule D and the supporting Form 8949 on her individual 1040.

The mechanics for the individual partner matter just as much as the partnership-level reporting. A partner does not report the partnership’s gross transactions. She reports the net amounts that flow to her on the K-1. So when the partnership sells the contributed building and specially allocates her the built-in gain plus her share of post-contribution gain, that combined number arrives on her K-1 as a separately stated capital gain. She carries it onto her Schedule D, and if the K-1 reporting requires transaction-level detail, onto Form 8949 as well. If the contributed property was a rental real estate interest generating ongoing income and depreciation, those flow through to her on the K-1 and onto her Schedule E, which is where partnership and rental income lands on the individual return. The 704(c) allocations are baked into the K-1 figures, so by the time the numbers reach her personal return, the special allocation has already done its work. Her job is to report what the K-1 tells her and keep her own basis records consistent with it.

Outside basis is the partner’s own running record of her investment in the partnership, and it interacts with built-in gain in a way that catches people off guard. When she contributes the building with a 400 thousand tax basis, her outside basis in the partnership interest starts at 400 thousand, the carryover basis, not the one million fair market value. Over time her outside basis goes up for her share of income and additional contributions, and down for distributions and her share of losses. When the partnership eventually allocates her the built-in gain, that gain increases her outside basis, which prevents her from being taxed twice when she later sells her partnership interest. Keeping outside basis right is the partner’s responsibility, and the K-1 gives her the pieces she needs, but the partnership does not compute outside basis for her. We handle that tracking for clients as part of preparing their individual returns, because a partner who loses track of outside basis can either overpay tax on a later sale or claim losses she is not allowed to take.

From a recordkeeping standpoint, the built-in gain numbers are only as good as the books behind them, and this is where contemporaneous bookkeeping pays for itself. The partnership has to record the contribution at the right values, maintain both the 704(b) book capital accounts and the tax-basis capital accounts, track depreciation on the contributed property on Form 4562, and update the remaining built-in gain every year. Miss any of those steps and the disparity gets lost, the K-1s come out wrong, and the contributing partner can end up shifting gain she should have paid tax on. We set up partnership books to carry these figures cleanly from day one through our bookkeeping service, and we prepare the partner-level returns so the K-1 amounts land on the right schedules through our individual tax return preparation. The reporting is unforgiving, and the IRS has steadily tightened the K-1 disclosures around contributed property, so sloppy tracking that used to slide by now gets flagged.

The traps in Section 704(c) are where partners actually lose money, and three of them account for most of the damage: depreciation of contributed property, the ceiling rule, and the seven-year mixing-bowl rules on distributions. Each one is subtle enough that a partnership can stumble into it without realizing anything is wrong until a return is being prepared or, worse, an audit is underway. The general partnership rules sit in Publication 541, but the specific traps live in the regulations and in the way the numbers actually run, so here is each one, with the kind of detail that keeps clients out of trouble.

Start with depreciation of contributed property, because it is the slow leak that drains value year after year. When a partner contributes depreciable property with a built-in gain, the partnership ends up with more book depreciation than tax depreciation, since book depreciation runs off the higher fair market value and tax depreciation runs off the lower carryover basis. Section 704(c) tries to give the non-contributing partners enough tax depreciation to match their book depreciation, but the available tax depreciation is limited by the property’s actual remaining basis. The trap is that partners often do not realize the tax depreciation is being steered away from the contributing partner toward everyone else, which changes each partner’s taxable income from what a naive even split would suggest. A contributing partner who expected to shelter income with depreciation can find she gets almost none of it, because under 704(c) the tax depreciation goes first to her partners. All of this depreciation gets reported on Form 4562, and the 704(c) reallocation sits on top of it, so the figures on the return do not match a simple percentage split. Partners who do not understand why are the ones who call us in a panic in March.

The ceiling rule is the second trap, and it is the one that turns a manageable disparity into a permanent distortion under the traditional method. The ceiling rule says a partnership cannot allocate more of any tax item to a partner than the partnership actually has of that item. So if the non-contributing partners are entitled to 25 thousand of tax depreciation to match their book depreciation, but the contributed property only generates 5 thousand of tax depreciation because its basis is so low, the partnership can only hand out the 5 thousand. The remaining 20 thousand shortfall just sits there, unfixed, under the traditional method. Over a long-lived asset like a building depreciated over twenty-seven and a half or thirty-nine years, that annual shortfall compounds into a serious misallocation, and it can leave a cash partner paying tax on income he should have been able to shelter. The fix is to elect the curative or remedial method up front, but you generally cannot switch methods after the fact, so the trap is failing to choose the right method at contribution. By the time the ceiling distortion shows up on a return, the partnership is usually stuck with it for the life of the property. We push clients to think hard about the method choice at formation precisely because this door closes.

The third and most dangerous trap is the seven-year mixing-bowl rules under Sections 704(c)(1)(B) and 737. These rules exist to stop partners from using a partnership to disguise a taxable exchange as a tax-free contribution and distribution. Section 704(c)(1)(B) says that if a partnership distributes contributed property to a partner other than the one who contributed it, and the distribution happens within seven years of the contribution, the contributing partner has to recognize the built-in gain as if the property had been sold at fair market value on the distribution date. So if our partner contributed a building with 600 thousand of built-in gain and the partnership distributes that building to a different partner four years later, the contributing partner gets hit with 600 thousand of taxable gain right then, even though she received nothing and sold nothing. The gain just lands on her, reported through her Schedule K-1 and onto her personal Schedule D and Form 8949. People are stunned by this one because it taxes a partner on property she gave away to the partnership years earlier.

Section 737 is the mirror-image rule and catches the other side of the same scheme. It says that if a partner who contributed appreciated property receives a distribution of other property from the partnership within seven years of her contribution, she recognizes gain to the extent of the lesser of her remaining built-in gain or the excess of the distributed property’s value over her outside basis. The idea is to stop a partner from contributing appreciated property, then pulling out different appreciated property tax-free, which would amount to a tax-free swap. Together, 704(c)(1)(B) and 737 are why these are called the mixing-bowl rules. Two partners cannot each toss appreciated property into the partnership mixing bowl, stir, and each pull out the other’s property without tax. If they try it inside the seven-year window, one or both rules trigger and the built-in gain becomes taxable. The seven-year clock runs separately for each contributed property, so a partnership with multiple contributions over time has multiple clocks running at once, and keeping track of them is its own recordkeeping burden.

There are a few more traps worth naming because they bite real clients. Disguised sales are one: if a partner contributes property and the partnership distributes cash to her around the same time, the IRS can recharacterize the whole thing as a taxable sale rather than a tax-free contribution, and a two-year window creates a presumption that a sale occurred. Built-in losses are another: special rules stop a partner from contributing property with a built-in loss and shifting that loss to other partners, so the loss generally stays locked to the contributing partner. And character matters: depreciation recapture on contributed property keeps its ordinary character and follows the property, so a partner can find that part of her allocated gain is taxed as ordinary income rather than capital gain. Each of these has its own reporting consequences that flow through the K-1 onto the partner’s return, including ongoing rental activity that lands on Schedule E.

The thread running through every one of these traps is timing and planning. The seven-year clocks, the method election, the disguised-sale window, and the depreciation steering all get decided at or near the contribution date, and most of them cannot be undone once the property is in the partnership. A partner who wants to take property back out, or who wants the partnership to distribute it to someone else, needs to know exactly where she stands on the seven-year clock before anyone moves, because crossing that line by even a day can flip a tax-free distribution into a six-figure tax bill. This is the kind of analysis we run before a partnership makes any distribution of contributed property, as part of our tax strategy consulting work, and it is why we keep partnership books that track every contribution date and built-in gain figure through our bookkeeping service. The partners who get burned are almost always the ones who treated the partnership as a casual arrangement and never wrote down when the property went in or how much built-in gain came with it.