-CITE-
26 USC Subchapter K - Partners and Partnerships 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter K - Partners and Partnerships
-HEAD-
SUBCHAPTER K - PARTNERS AND PARTNERSHIPS
-MISC1-
Part
I. Determination of tax liability.
II. Contributions, distributions, and transfers.
III. Definitions.
IV. Special rules for electing large partnerships.
AMENDMENTS
1997 - Pub. L. 105-34, title XII, Sec. 1221(b), Aug. 5, 1997, 111
Stat. 1008, added item for part IV.
-SECREF-
SUBCHAPTER REFERRED TO IN OTHER SECTIONS
This subchapter is referred to in sections 384, 1011, 1012, 1031
of this title; title 42 section 411; title 46 App. section 1177.
-End-
-CITE-
26 USC PART I - DETERMINATION OF TAX LIABILITY 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter K - Partners and Partnerships
PART I - DETERMINATION OF TAX LIABILITY
-HEAD-
PART I - DETERMINATION OF TAX LIABILITY
-MISC1-
Sec.
701. Partners, not partnership, subject to tax.
702. Income and credits of partner.
703. Partnership computations.
704. Partner's distributive share.
705. Determination of basis of partner's interest.
706. Taxable years of partner and partnership.
707. Transactions between partner and partnership.
708. Continuation of partnership.
709. Treatment of organization and syndication fees.
AMENDMENTS
1976 - Pub. L. 94-455, title II, Sec. 213(b)(2), title XIX, Sec.
1901(b)(23), Oct. 4, 1976, 90 Stat. 1547, 1798, struck out part IV
"Effective date for subchapter" in table of parts of subchapter K
of chapter 1 and added item 709.
-End-
-CITE-
26 USC Sec. 701 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter K - Partners and Partnerships
PART I - DETERMINATION OF TAX LIABILITY
-HEAD-
Sec. 701. Partners, not partnership, subject to tax
-STATUTE-
A partnership as such shall not be subject to the income tax
imposed by this chapter. Persons carrying on business as partners
shall be liable for income tax only in their separate or individual
capacities.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 239.)
-End-
-CITE-
26 USC Sec. 702 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter K - Partners and Partnerships
PART I - DETERMINATION OF TAX LIABILITY
-HEAD-
Sec. 702. Income and credits of partner
-STATUTE-
(a) General rule
In determining his income tax, each partner shall take into
account separately his distributive share of the partnership's -
(1) gains and losses from sales or exchanges of capital assets
held for not more than 1 year,
(2) gains and losses from sales or exchanges of capital assets
held for more than 1 year,
(3) gains and losses from sales or exchanges of property
described in section 1231 (relating to certain property used in a
trade or business and involuntary conversions),
(4) charitable contributions (as defined in section 170(c)),
(5) dividends with respect to which section 1(h)(11) or part
VIII of subchapter B applies,
(6) taxes, described in section 901, paid or accrued to foreign
countries and to possessions of the United States,
(7) other items of income, gain, loss, deduction, or credit, to
the extent provided by regulations prescribed by the Secretary,
and
(8) taxable income or loss, exclusive of items requiring
separate computation under other paragraphs of this subsection.
(b) Character of items constituting distributive share
The character of any item of income, gain, loss, deduction, or
credit included in a partner's distributive share under paragraphs
(1) through (7) of subsection (a) shall be determined as if such
item were realized directly from the source from which realized by
the partnership, or incurred in the same manner as incurred by the
partnership.
(c) Gross income of a partner
In any case where it is necessary to determine the gross income
of a partner for purposes of this title, such amount shall include
his distributive share of the gross income of the partnership.
(d) Cross reference
For rules relating to procedures for determining the tax
treatment of partnership items see subchapter C of chapter 63
(section 6221 and following).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 239; Pub. L. 88-272, title II,
Sec. 201(d)(7), Feb. 26, 1964, 78 Stat. 32; Pub. L. 94-455, title
XIV, Sec. 1402(b)(1)(L), (2), title XIX, Secs. 1901(b)(1)(I)(i),
(ii), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1732, 1791, 1834; Pub.
L. 96-223, title IV, Sec. 404(b)(5), Apr. 2, 1980, 94 Stat. 307;
Pub. L. 97-34, title III, Sec. 301(b)(5), (6)(C), Aug. 13, 1981, 95
Stat. 270; Pub. L. 97-248, title IV, Sec. 402(c)(1), Sept. 3, 1982,
96 Stat. 667; Pub. L. 97-448, title I, Sec. 103(a)(4), Jan. 12,
1983, 96 Stat. 2375; Pub. L. 98-369, div. A, title X, Sec.
1001(b)(9), (e), July 18, 1984, 98 Stat. 1011, 1012; Pub. L.
99-514, title VI, Sec. 612(b)(5), Oct. 22, 1986, 100 Stat. 2250;
Pub. L. 108-27, title III, Sec. 302(e)(8), May 28, 2003, 117 Stat.
764.)
-STATAMEND-
AMENDMENT OF SECTION
For termination of amendment by section 303 of Pub. L. 108-27,
see Effective and Termination Dates of 2003 Amendment note below.
-MISC1-
AMENDMENTS
2003 - Subsec. (a)(5). Pub. L. 108-27, Secs. 302(e)(8), 303,
temporarily amended par. (5) generally. Prior to amendment, par.
(5) read as follows: "dividends with respect to which there is a
deduction under part VIII of subchapter B,". See Effective and
Termination Dates of 2003 Amendment note below.
1986 - Subsec. (a)(5). Pub. L. 99-514 amended par. (5) generally.
Prior to amendment, par. (5) read as follows: "dividends or
interest with respect to which there is an exclusion under section
116 or 128, or a deduction under part VIII of subchapter B,".
1984 - Subsec. (a)(1), (2). Pub. L. 98-369 substituted "6 months"
for "1 year", applicable to property acquired after June 22, 1984,
and before Jan. 1, 1988. See Effective Date of 1984 Amendment note
below.
1983 - Subsec. (a)(5). Pub. L. 97-448 substituted "an exclusion
under section 116 or 128," for "provided an exclusion under section
116 or 128".
1982 - Subsec. (d). Pub. L. 97-248 added subsec. (d).
1981 - Subsec. (a)(5). Pub. L. 97-34, Sec. 301(b)(6)(C), inserted
reference to "interest" in heading and text which continued the
amendment made by Pub. L. 96-223.
Pub. L. 97-34, Sec. 301(b)(5), inserted "or 128" after "section
116".
1980 - Subsec. (a)(5). Pub. L. 96-223 inserted "or interest"
after "dividends".
1976 - Subsec. (a)(1), (2). Pub. L. 94-455, Sec. 1402(b)(2),
provided that "9 months" would be changed to "1 year".
Pub. L. 94-455, Sec. 1402(b)(1)(L), provided that "6 months"
would be changed to "9 months" for taxable years beginning in 1977.
Subsec. (a)(7) to (9). Pub. L. 94-455, Secs. 1901(b)(1)(I)(i),
1906(b)(13)(A), redesignated pars. (8) and (9) as (7) and (8),
respectively, and in par. (7), as so redesignated, struck out "or
his delegate" after "Secretary". Former par. (7), which related
partially tax-exempt interest on obligations of the United States
or its instrumentalities, was struck out.
Subsec. (b). Pub. L. 94-455, Sec. 1901(b)(1)(I)(ii), substituted
"paragraphs (1) through (7)" for "paragraphs (1) through (8)".
1964 - Subsec. (a)(5). Pub. L. 88-272 struck out "a credit under
section 34," before "an exclusion".
EFFECTIVE AND TERMINATION DATES OF 2003 AMENDMENT
Amendment by Pub. L. 108-27 applicable, except as otherwise
provided, to taxable years beginning after Dec. 31, 2002, see
section 302(f) of Pub. L. 108-27, set out as a note under section 1
of this title.
Amendment by Pub. L. 108-27 inapplicable to taxable years
beginning after Dec. 31, 2008, and the Internal Revenue Code of
1986 to be applied and administered to such years as if such
amendment had never been enacted, see section 303 of Pub. L.
108-27, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to taxable years beginning
after Dec. 31, 1986, see section 612(c) of Pub. L. 99-514, set out
as a note under section 301 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable to property acquired after
June 22, 1984, and before Jan. 1, 1988, see section 1001(e) of Pub.
L. 98-369, set out as a note under section 166 of this title.
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by Pub. L. 97-448 effective, except as otherwise
provided, as if it had been included in the provision of the
Economic Recovery Tax Act of 1981, Pub. L. 97-34, to which such
amendment relates, see section 109 of Pub. L. 97-448, set out as a
note under section 1 of this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by Pub. L. 97-248 applicable to partnership taxable
years beginning after Sept. 3, 1982, with provision for the
applicability of the amendment to any partnership taxable year
ending after Sept. 3, 1982, if the partnership, each partner, and
each indirect partner requests such application and the Secretary
of the Treasury or his delegate consents to such application, see
section 407(a)(1), (3) of Pub. L. 97-248, set out as an Effective
Date note under section 6221 of this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Amendment by section 301(b)(5) of Pub. L. 97-34 applicable to
taxable years ending after Sept. 30, 1981, and amendment by section
301(b)(6)(C) of Pub. L. 97-34 applicable to taxable years beginning
after Dec. 31, 1981, see section 301(d) of Pub. L. 97-34, set out
as a note under section 265 of this title.
EFFECTIVE AND TERMINATION DATES OF 1980 AMENDMENT
Amendment by Pub. L. 96-223 applicable with respect to taxable
years beginning after Dec. 31, 1980, and before Jan. 1, 1982, see
section 404(c) of Pub. L. 96-223, set out as a note under section
265 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Section 1402(b)(1) of Pub. L. 94-455 provided that the amendment
made by that section is effective with respect to taxable years
beginning in 1977.
Section 1402(b)(2) of Pub. L. 94-455 provided that the amendment
made by that section is effective with respect to taxable years
beginning after Dec. 31, 1977.
Amendment by section 1901(b)(1)(I)(i), (ii) of Pub. L. 94-455
effective for taxable years beginning after Dec. 31, 1976, see
section 1901(d) of Pub. L. 94-455, set out as a note under section
2 of this title.
EFFECTIVE DATE OF 1964 AMENDMENT
Amendment by Pub. L. 88-272 applicable with respect to dividends
received after Dec. 31, 1964, in taxable years ending after such
date, see section 201(e) of Pub. L. 88-272, set out as a note under
section 22 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 170, 703, 706, 772, 1366,
1402, 7519 of this title; title 42 sections 403, 411.
-End-
-CITE-
26 USC Sec. 703 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter K - Partners and Partnerships
PART I - DETERMINATION OF TAX LIABILITY
-HEAD-
Sec. 703. Partnership computations
-STATUTE-
(a) Income and deductions
The taxable income of a partnership shall be computed in the same
manner as in the case of an individual except that -
(1) the items described in section 702(a) shall be separately
stated, and
(2) the following deductions shall not be allowed to the
partnership:
(A) the deductions for personal exemptions provided in
section 151,
(B) the deduction for taxes provided in section 164(a) with
respect to taxes, described in section 901, paid or accrued to
foreign countries and to possessions of the United States,
(C) the deduction for charitable contributions provided in
section 170,
(D) the net operating loss deduction provided in section 172,
(E) the additional itemized deductions for individuals
provided in part VII of subchapter B (sec. 211 and following),
and
(F) the deduction for depletion under section 611 with
respect to oil and gas wells.
(b) Elections of the partnership
Any election affecting the computation of taxable income derived
from a partnership shall be made by the partnership, except that
any election under -
(1) subsection (b)(5) or (c)(3) of section 108 (relating to
income from discharge of indebtedness),
(2) section 617 (relating to deduction and recapture of certain
mining exploration expenditures), or
(3) section 901 (relating to taxes of foreign countries and
possessions of the United States),
shall be made by each partner separately.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 240; Pub. L. 89-570, Sec. 2(b),
Sept. 12, 1966, 80 Stat. 764; Pub. L. 91-172, title V, Sec.
504(c)(3), Dec. 30, 1969, 83 Stat. 633; Pub. L. 92-178, title III,
Sec. 304(c), Dec. 10, 1971, 85 Stat. 523; Pub. L. 94-12, title V,
Sec. 501(b)(3), Mar. 29, 1975, 89 Stat. 53; Pub. L. 94-455, title
XIX, Sec. 1901(b)(21)(F), title XXI, Sec. 2115(c)(2), Oct. 4, 1976,
90 Stat. 1798, 1909; Pub. L. 95-30, title I, Sec. 101(d)(10), May
23, 1977, 91 Stat. 134; Pub. L. 96-589, Sec. 2(e)(1), Dec. 24,
1980, 94 Stat. 3396; Pub. L. 99-514, title V, Sec. 511(d)(2)(B),
title VII, Sec. 701(e)(4)(E), Oct. 22, 1986, 100 Stat. 2249, 2343;
Pub. L. 100-647, title I, Sec. 1008(i), Nov. 10, 1988, 102 Stat.
3445; Pub. L. 103-66, title XIII, Sec. 13150(c)(9), Aug. 10, 1993,
107 Stat. 448.)
-MISC1-
AMENDMENTS
1993 - Subsec. (b)(1). Pub. L. 103-66 substituted "subsection
(b)(5) or (c)(3)" for "subsection (b)(5)".
1988 - Subsec. (b)(1). Pub. L. 100-647 substituted "subsection
(b)(5)" for "subsection (b)(5) or (d)(4)".
1986 - Subsec. (b). Pub. L. 99-514 struck out former pars. (1)
and (3) which related to elections under sections 57(c) and 163(d),
respectively, and redesignated former pars. (2), (4), and (5), as
pars. (1), (2), and (3), respectively.
1980 - Subsec. (b). Pub. L. 96-589 inserted reference to section
108(b)(5) and (d)(4).
1977 - Subsec. (a)(2). Pub. L. 95-30 struck out subpar. (A) which
made reference to the standard deduction provided in section 141,
and redesignated subpars. (B) to (G) as (A) to (F), respectively.
1976 - Subsec. (a)(2)(G). Pub. L. 94-455, Sec. 2115(c)(2),
substituted "wells" for "production subject to the provisions of
section 613A(c)".
Subsec. (b). Pub. L. 94-455, Sec. 1901(b)(21)(F), struck out
"under section 615 (relating to pre-1970 exploration
expenditures)," after "of the United States, and any election".
1975 - Subsec. (a)(2)(G). Pub. L. 94-12 added subpar. (G).
1971 - Subsec. (b). Pub. L. 92-178 substituted "," for "or" after
"(relating to pre-1970 exploration expenditures)" and inserted
"under section 57(c) (relating to definition of net lease), or
under section 163(d) (relating to limitation on interest on
investment indebtedness)" after "(relating to deduction and
recapture of certain mining exploration expenditures)".
1969 - Subsec. (b). Pub. L. 91-172 substituted "(relating to
pre-1970 exploration expenditures) or under section 617 (relating
to deduction and recapture of certain mining exploration
expenditures)" for "(relating to exploration expenditures) or under
section 617 (relating to additional exploration expenditures in the
case of domestic mining)".
1966 - Subsec. (b). Pub. L. 89-570 provided for election under
section 615 (relating to exploration expenditures) or under section
617 (relating to additional exploration expenditures in the case of
domestic mining).
EFFECTIVE DATE OF 1993 AMENDMENT
Amendment by Pub. L. 103-66 applicable to discharges after Dec.
31, 1992, in taxable years ending after such date, see section
13150(d) of Pub. L. 103-66, set out as a note under section 108 of
this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 511(d)(2)(B) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 511(e) of
Pub. L. 99-514, set out as a note under section 163 of this title.
Amendment by section 701(e)(4)(E) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, with certain
exceptions and qualifications, see section 701(f) of Pub. L.
99-514, set out as an Effective Date note under section 55 of this
title.
EFFECTIVE DATE OF 1980 AMENDMENT
Amendment by Pub. L. 96-589 applicable to transactions which
occur after Dec. 31, 1980, other than transactions which occur in a
proceeding in a bankruptcy case or similar judicial proceeding or
in a proceeding under Title 11 commencing on or after Dec. 31,
1980, with an exception permitting the debtor to make the amendment
applicable to transactions occurring after Sept. 30, 1979; in a
specified manner, see section 7(a)(1), (f) of Pub. L. 96-589, set
out as a note under section 108 of this title.
EFFECTIVE DATE OF 1977 AMENDMENT
Amendment by Pub. L. 95-30 applicable to taxable years beginning
after Dec. 31, 1976, see section 106(a) of Pub. L. 95-30, set out
as a note under section 1 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1901(b)(21)(F) of Pub. L. 94-455 effective
for taxable years beginning after Dec. 31, 1976, see section
1901(d) of Pub. L. 94-455, set out as a note under section 2 of
this title.
Amendment by section 2115(c)(2) of Pub. L. 94-455 effective on
Jan. 1, 1975 and applicable to taxable years ending after Dec. 31,
1974, see section 2115(f) of Pub. L. 94-455, set out as a note
under section 613A of this title.
EFFECTIVE DATE OF 1975 AMENDMENT
Amendment by Pub. L. 94-12 effective Jan. 1, 1975, to apply to
taxable years ending after Dec. 31, 1974, see section 501(c) of
Pub. L. 94-12, set out as an Effective Date note under section 613A
of this title.
EFFECTIVE DATE OF 1969 AMENDMENT
Amendment by Pub. L. 91-172 applicable with respect to
exploration expenditures paid or incurred after Dec. 31, 1969, see
section 504(d)(1) of Pub. L. 91-172, set out as an Effective Date
note under section 243 of this title.
EFFECTIVE DATE OF 1966 AMENDMENT
Amendment by Pub. L. 89-570 applicable to taxable years ending
after Sept. 12, 1966, but only in respect of expenditures paid or
incurred after such date, see section 3 of Pub. L. 89-570, set out
as an Effective Date note under section 617 of this title.
APPLICABILITY OF CERTAIN AMENDMENTS BY PUB. L. 99-514 IN RELATION
TO TREATY OBLIGATIONS OF UNITED STATES
For applicability of amendment by section 701(e)(4)(E) of Pub. L.
99-514 notwithstanding any treaty obligation of the United States
in effect on Oct. 22, 1986, with provision that for such purposes
any amendment by title I of Pub. L. 100-647 be treated as if it had
been included in the provision of Pub. L. 99-514 to which such
amendment relates, see section 1012(aa)(2), (4) of Pub. L. 100-647,
set out as a note under section 861 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 705, 860C, 901, 1363,
1446 of this title.
-End-
-CITE-
26 USC Sec. 704 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter K - Partners and Partnerships
PART I - DETERMINATION OF TAX LIABILITY
-HEAD-
Sec. 704. Partner's distributive share
-STATUTE-
(a) Effect of partnership agreement
A partner's distributive share of income, gain, loss, deduction,
or credit shall, except as otherwise provided in this chapter, be
determined by the partnership agreement.
(b) Determination of distributive share
A partner's distributive share of income, gain, loss, deduction,
or credit (or item thereof) shall be determined in accordance with
the partner's interest in the partnership (determined by taking
into account all facts and circumstances), if -
(1) the partnership agreement does not provide as to the
partner's distributive share of income, gain, loss, deduction, or
credit (or item thereof), or
(2) the allocation to a partner under the agreement of income,
gain, loss, deduction, or credit (or item thereof) does not have
substantial economic effect.
(c) Contributed property
(1) In general
Under regulations prescribed by the Secretary -
(A) income, gain, loss, and deduction with respect to
property contributed to the partnership by a partner shall be
shared among the partners so as to take account of the
variation between the basis of the property to the partnership
and its fair market value at the time of contribution, and
(B) if any property so contributed is distributed (directly
or indirectly) by the partnership (other than to the
contributing partner) within 7 years of being contributed -
(i) the contributing partner shall be treated as
recognizing gain or loss (as the case may be) from the sale
of such property in an amount equal to the gain or loss which
would have been allocated to such partner under subparagraph
(A) by reason of the variation described in subparagraph (A)
if the property had been sold at its fair market value at the
time of the distribution,
(ii) the character of such gain or loss shall be determined
by reference to the character of the gain or loss which would
have resulted if such property had been sold by the
partnership to the distributee, and
(iii) appropriate adjustments shall be made to the adjusted
basis of the contributing partner's interest in the
partnership and to the adjusted basis of the property
distributed to reflect any gain or loss recognized under this
subparagraph.
(2) Special rule for distributions where gain or loss would not
be recognized outside partnerships
Under regulations prescribed by the Secretary, if -
(A) property contributed by a partner (hereinafter referred
to as the "contributing partner") is distributed by the
partnership to another partner, and
(B) other property of a like kind (within the meaning of
section 1031) is distributed by the partnership to the
contributing partner not later than the earlier of -
(i) the 180th day after the date of the distribution
described in subparagraph (A), or
(ii) the due date (determined with regard to extensions)
for the contributing partner's return of the tax imposed by
this chapter for the taxable year in which the distribution
described in subparagraph (A) occurs,
then to the extent of the value of the property described in
subparagraph (B), paragraph (1)(B) shall be applied as if the
contributing partner had contributed to the partnership the
property described in subparagraph (B).
(3) Other rules
Under regulations prescribed by the Secretary, rules similar to
the rules of paragraph (1) shall apply to contributions by a
partner (using the cash receipts and disbursements method of
accounting) of accounts payable and other accrued but unpaid
items. Any reference in paragraph (1) or (2) to the contributing
partner shall be treated as including a reference to any
successor of such partner.
(d) Limitation on allowance of losses
A partner's distributive share of partnership loss (including
capital loss) shall be allowed only to the extent of the adjusted
basis of such partner's interest in the partnership at the end of
the partnership year in which such loss occurred. Any excess of
such loss over such basis shall be allowed as a deduction at the
end of the partnership year in which such excess is repaid to the
partnership.
(e) Family partnerships
(1) Recognition of interest created by purchase or gift
A person shall be recognized as a partner for purposes of this
subtitle if he owns a capital interest in a partnership in which
capital is a material income-producing factor, whether or not
such interest was derived by purchase or gift from any other
person.
(2) Distributive share of donee includible in gross income
In the case of any partnership interest created by gift, the
distributive share of the donee under the partnership agreement
shall be includible in his gross income, except to the extent
that such share is determined without allowance of reasonable
compensation for services rendered to the partnership by the
donor, and except to the extent that the portion of such share
attributable to donated capital is proportionately greater than
the share of the donor attributable to the donor's capital. The
distributive share of a partner in the earnings of the
partnership shall not be diminished because of absence due to
military service.
(3) Purchase of interest by member of family
For purposes of this section, an interest purchased by one
member of a family from another shall be considered to be created
by gift from the seller, and the fair market value of the
purchased interest shall be considered to be donated capital. The
"family" of any individual shall include only his spouse,
ancestors, and lineal descendants, and any trusts for the primary
benefit of such persons.
(f) Cross reference
For rules in the case of the sale, exchange, liquidation, or
reduction of a partner's interest, see section 706(c)(2).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 240; Pub. L. 94-455, title II,
Sec. 213(c)(2), (3)(A), (d), (e), title XIX, Sec. 1906(b)(13)(A),
Oct. 4, 1976, 90 Stat. 1548, 1834; Pub. L. 95-600, title II, Sec.
201(b)(1), Nov. 6, 1978, 92 Stat. 2816; Pub. L. 98-369, div. A,
title I, Sec. 71(a), July 18, 1984, 98 Stat. 589; Pub. L. 101-239,
title VII, Sec. 7642(a), Dec. 19, 1989, 103 Stat. 2379; Pub. L.
102-486, title XIX, Sec. 1937(b)(1), Oct. 24, 1992, 106 Stat. 3033;
Pub. L. 105-34, title X, Sec. 1063(a), Aug. 5, 1997, 111 Stat.
947.)
-MISC1-
AMENDMENTS
1997 - Subsec. (c)(1)(B). Pub. L. 105-34 substituted "7 years"
for "5 years" in introductory provisions.
1992 - Subsec. (c)(1)(B). Pub. L. 102-486 substituted "is
distributed (directly or indirectly)" for "is distributed".
1989 - Subsec. (c). Pub. L. 101-239 amended subsec. (c)
generally. Prior to amendment, subsec. (c) read as follows: "Under
regulations prescribed by the Secretary, income, gain, loss, and
deduction with respect to property contributed to the partnership
by a partner shall be shared among partners so as to take account
of the variation between the basis of the property to the
partnership and its fair market value at the time of contribution.
Under regulations prescribed by the Secretary, rules similar to the
rules of the preceding sentence shall apply to contributions by a
partner (using the cash receipts and disbursements method of
accounting) of accounts payable and other accrued but unpaid
items."
1984 - Subsec. (c). Pub. L. 98-369 amended subsec. (c) generally,
substituting provisions directing that, under regulations
prescribed by the Secretary, income, gain, loss, and deduction with
respect to property contributed to the partnership by a partner be
shared among partners so as to take account of the variation
between the basis of the property to the partnership and its fair
market value at the time of contribution, and that similar rules
apply to contributions by a partner (using the cash receipts and
disbursements method of accounting) of accounts payable and other
accrued but unpaid items for provisions which had directed that, if
the partnership agreement so provided, depreciation, depletion, or
gain or loss with respect to property contributed to the
partnership by a partner would under regulations prescribed by the
Secretary, be shared among the partners so as to take account of
the variation between the basis of the property to the partnership
and its fair market value at the time of contribution, and struck
out provisions which had directed that in determining a partner's
distributive share of items described in section 702(a),
depreciation, depletion, or gain or loss with respect to property
contributed to the partnership by a partner would, except to the
extent otherwise provided, be allocated among the partners in the
same manner as if such property had been purchased by the
partnership and that if the partnership agreement did not provide
otherwise, depreciation, depletion, or gain or loss with respect to
undivided interests in property contributed to a partnership would
be determined as though such undivided interests had not been
contributed to the partnership.
1978 - Subsec. (d). Pub. L. 95-600 struck out provisions relating
to adjusted basis of a partner's interest.
1976 - Subsec. (a). Pub. L. 94-455, Sec. 213(c)(2), substituted
"except as otherwise provided in this chapter" for "except as
otherwise provided in this section".
Subsec. (b). Pub. L. 94-455, Sec. 213(d), among other changes,
substituted "Determination of distributive share" for "Distributive
share determined by income or loss ratio" in heading, in provisions
preceding par. (1) "the partner's interest in the partnership
(determined by taking into account all facts and circumstances)"
for "his distributive share of taxable income or loss of the
partnership, as described in section 702(a)(9), for the taxable
year", and in par. (2) provision relating to a lack of substantial
economic effect in a partnership agreement for provisions relating
to the partnership agreement's purpose being the avoidance or
evasion of taxes.
Subsec. (c)(2). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out
"or his delegate" after "Secretary".
Subsec. (d). Pub. L. 94-455, Sec. 213(e), inserted provision
relating to the determination of the adjusted basis of a partner's
liability where there is no personal liability and the
applicability of such determination where section 465 of this title
applies or the principal activity of the partnership is real estate
investment.
Subsec. (f). Pub. L. 94-455, Sec. 213(c)(3)(A), added subsec.
(f).
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1063(b) of Pub. L. 105-34 provided that:
"(1) In general. - The amendment made by subsection (a) [amending
this section and section 737 of this title] shall apply to property
contributed to a partnership after June 8, 1997.
"(2) Binding contracts. - The amendment made by subsection (a)
shall not apply to any property contributed pursuant to a written
binding contract in effect on June 8, 1997, and at all times
thereafter before such contribution if such contract provides for
the contribution of a fixed amount of property."
EFFECTIVE DATE OF 1992 AMENDMENT
Section 1937(c) of Pub. L. 102-486 provided that: "The amendments
made by this section [enacting section 737 of this title and
amending this section and section 731 of this title] shall apply to
distributions on or after June 25, 1992."
EFFECTIVE DATE OF 1989 AMENDMENT
Section 7642(b) of Pub. L. 101-239 provided that: "The amendment
made by subsection (a) [amending this section] shall apply in the
case of property contributed to the partnership after October 3,
1989, in taxable years ending after such date."
EFFECTIVE DATE OF 1984 AMENDMENT
Section 71(c) of Pub. L. 98-369 provided that: "The amendments
made by this section [amending this section and sections 613A and
743 of this title] shall apply with respect to property contributed
to the partnership after March 31, 1984, in taxable years ending
after such date."
EFFECTIVE DATE OF 1978 AMENDMENT
Amendment by Pub. L. 95-600 and enactment of provision set out as
a note under this section by section 201(b)(2) of Pub. L. 95-600
applicable to taxable years beginning after Dec. 31, 1978, see
section 204(a) of Pub. L. 95-600, set out as a note under section
465 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 213(c)(2), (c)(3)(A), (d) of Pub. L. 94-455
applicable in the case of partnership taxable years beginning after
Dec. 31, 1975, see section 213(f)(1) of Pub. L. 94-455, set out as
an Effective Date note under section 709 of this title.
Amendment by section 213(e) of Pub. L. 94-455 applicable to
liabilities incurred after Dec. 31, 1976, see section 213(f)(2) of
Pub. L. 94-455, set out as an Effective Date note under section 709
of this title.
TRANSITIONAL RULE FOR LIMITATION ON ALLOWANCE OF LOSSES
Section 201(b)(2) of Pub. L. 95-600, as amended by Pub. L.
99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "In
the case of a loss which was not allowed for any taxable year by
reason of the last 2 sentences of section 704(d) of the Internal
Revenue Code of 1986 [formerly I.R.C. 1954] (as in effect before
the date of the enactment of this Act [Nov. 6, 1978]), such loss
shall be treated as a deduction (subject to section 465(a) of such
Code) for the first taxable year beginning after December 31, 1978.
Section 465(a) of such Code (as amended by this section) shall not
apply with respect to partnership liabilities to which the last 2
sentences of section 704(d) of such Code (as in effect on the day
before the date of enactment of this Act) did not apply because of
the provisions of section 213(f)(2) of the Tax Reform Act of 1976
[set out as a note under section 709 of this title]."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 59, 168, 461, 514, 613A,
737, 743, 761, 1366, 1446, 6241 of this title.
-End-
-CITE-
26 USC Sec. 705 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter K - Partners and Partnerships
PART I - DETERMINATION OF TAX LIABILITY
-HEAD-
Sec. 705. Determination of basis of partner's interest
-STATUTE-
(a) General rule
The adjusted basis of a partner's interest in a partnership
shall, except as provided in subsection (b), be the basis of such
interest determined under section 722 (relating to contributions to
a partnership) or section 742 (relating to transfers of partnership
interests) -
(1) increased by the sum of his distributive share for the
taxable year and prior taxable years of -
(A) taxable income of the partnership as determined under
section 703(a),
(B) income of the partnership exempt from tax under this
title, and
(C) the excess of the deductions for depletion over the basis
of the property subject to depletion;
(2) decreased (but not below zero) by distributions by the
partnership as provided in section 733 and by the sum of his
distributive share for the taxable year and prior taxable years
of -
(A) losses of the partnership, and
(B) expenditures of the partnership not deductible in
computing its taxable income and not properly chargeable to
capital account; and
(3) decreased (but not below zero) by the amount of the
partner's deduction for depletion for any partnership oil and gas
property to the extent such deduction does not exceed the
proportionate share of the adjusted basis of such property
allocated to such partner under section 613A(c)(7)(D).
(b) Alternative rule
The Secretary shall prescribe by regulations the circumstances
under which the adjusted basis of a partner's interest in a
partnership may be determined by reference to his proportionate
share of the adjusted basis of partnership property upon a
termination of the partnership.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 242; Pub. L. 94-455, title XIX,
Sec. 1906(b)(13)(A), title XXI, Sec. 2115(c)(3), Oct. 4, 1976, 90
Stat. 1834, 1909; Pub. L. 98-369, div. A, title VII, Sec.
722(e)(1), July 18, 1984, 98 Stat. 974.)
-MISC1-
AMENDMENTS
1984 - Subsec. (a)(3). Pub. L. 98-369 substituted "for any
partnership oil and gas property to the extent such deduction does
not exceed the proportionate share of the adjusted basis of such
property allocated to such partner under section 613A(c)(7)(D)" for
"under section 611 with respect to oil and gas wells".
1976 - Subsec. (a)(3). Pub. L. 94-455, Sec. 2115(c)(3), added
par. (3).
Subsec. (b). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out "or
his delegate" after "Secretary".
EFFECTIVE DATE OF 1984 AMENDMENT
Section 722(e)(3)(A) of Pub. L. 98-369 provided that: "The
amendment made by paragraph (1) [amending this section] shall take
effect on January 1, 1975."
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 2115(c)(3) of Pub. L. 94-455 effective on
Jan. 1, 1975, and applicable to taxable years ending after Dec. 31,
1974, see section 2115(f) of Pub. L. 94-455, set out as a note
under section 613A of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in section 776 of this title.
-End-
-CITE-
26 USC Sec. 706 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter K - Partners and Partnerships
PART I - DETERMINATION OF TAX LIABILITY
-HEAD-
Sec. 706. Taxable years of partner and partnership
-STATUTE-
(a) Year in which partnership income is includible
In computing the taxable income of a partner for a taxable year,
the inclusions required by section 702 and section 707(c) with
respect to a partnership shall be based on the income, gain, loss,
deduction, or credit of the partnership for any taxable year of the
partnership ending within or with the taxable year of the partner.
(b) Taxable year
(1) Partnership's taxable year
(A) Partnership treated as taxpayer
The taxable year of a partnership shall be determined as
though the partnership were a taxpayer.
(B) Taxable year determined by reference to partners
Except as provided in subparagraph (C), a partnership shall
not have a taxable year other than -
(i) the majority interest taxable year (as defined in
paragraph (4)),
(ii) if there is no taxable year described in clause (i),
the taxable year of all the principal partners of the
partnership, or
(iii) if there is no taxable year described in clause (i)
or (ii), the calendar year unless the Secretary by
regulations prescribes another period.
(C) Business purpose
A partnership may have a taxable year not described in
subparagraph (B) if it establishes, to the satisfaction of the
Secretary, a business purpose therefor. For purposes of this
subparagraph, any deferral of income to partners shall not be
treated as a business purpose.
(2) Partner's taxable year
A partner may not change to a taxable year other than that of a
partnership in which he is a principal partner unless he
establishes, to the satisfaction of the Secretary, a business
purpose therefor.
(3) Principal partner
For the purpose of this subsection, a principal partner is a
partner having an interest of 5 percent or more in partnership
profits or capital.
(4) Majority interest taxable year; limitation on required
changes
(A) Majority interest taxable year defined
For purposes of paragraph (1)(B)(i) -
(i) In general
The term "majority interest taxable year" means the taxable
year (if any) which, on each testing day, constituted the
taxable year of 1 or more partners having (on such day) an
aggregate interest in partnership profits and capital of more
than 50 percent.
(ii) Testing days
The testing days shall be -
(I) the 1st day of the partnership taxable year
(determined without regard to clause (i)), or
(II) the days during such representative period as the
Secretary may prescribe.
(B) Further change not required for 3 years
Except as provided in regulations necessary to prevent the
avoidance of this section, if, by reason of paragraph
(1)(B)(i), the taxable year of a partnership is changed, such
partnership shall not be required to change to another taxable
year for either of the 2 taxable years following the year of
change.
(5) Application with other sections
Except as provided in regulations, for purposes of determining
the taxable year to which a partnership is required to change by
reason of this subsection, changes in taxable years of other
persons required by this subsection, section 441(i), section
584(h),(!1) section 644, or section 1378(a) shall be taken into
account.
(c) Closing of partnership year
(1) General rule
Except in the case of a termination of a partnership and except
as provided in paragraph (2) of this subsection, the taxable year
of a partnership shall not close as the result of the death of a
partner, the entry of a new partner, the liquidation of a
partner's interest in the partnership, or the sale or exchange of
a partner's interest in the partnership.
(2) Treatment of dispositions
(A) Disposition of entire interest
The taxable year of a partnership shall close with respect to
a partner whose entire interest in the partnership terminates
(whether by reason of death, liquidation, or otherwise).
(B) Disposition of less than entire interest
The taxable year of a partnership shall not close (other than
at the end of a partnership's taxable year as determined under
subsection (b)(1)) with respect to a partner who sells or
exchanges less than his entire interest in the partnership or
with respect to a partner whose interest is reduced (whether by
entry of a new partner, partial liquidation of a partner's
interest, gift, or otherwise).
(d) Determination of distributive share when partner's interest
changes
(1) In general
Except as provided in paragraphs (2) and (3), if during any
taxable year of the partnership there is a change in any
partner's interest in the partnership, each partner's
distributive share of any item of income, gain, loss, deduction,
or credit of the partnership for such taxable year shall be
determined by the use of any method prescribed by the Secretary
by regulations which takes into account the varying interests of
the partners in the partnership during such taxable year.
(2) Certain cash basis items prorated over period to which
attributable
(A) In general
If during any taxable year of the partnership there is a
change in any partner's interest in the partnership, then
(except to the extent provided in regulations) each partner's
distributive share of any allocable cash basis item shall be
determined -
(i) by assigning the appropriate portion of such item to
each day in the period to which it is attributable, and
(ii) by allocating the portion assigned to any such day
among the partners in proportion to their interests in the
partnership at the close of such day.
(B) Allocable cash basis item
For purposes of this paragraph, the term "allocable cash
basis item" means any of the following items with respect to
which the partnership uses the cash receipts and disbursements
method of accounting:
(i) Interest.
(ii) Taxes.
(iii) Payments for services or for the use of property.
(iv) Any other item of a kind specified in regulations
prescribed by the Secretary as being an item with respect to
which the application of this paragraph is appropriate to
avoid significant misstatements of the income of the
partners.
(C) Items attributable to periods not within taxable year
If any portion of any allocable cash basis item is
attributable to -
(i) any period before the beginning of the taxable year,
such portion shall be assigned under subparagraph (A)(i) to
the first day of the taxable year, or
(ii) any period after the close of the taxable year, such
portion shall be assigned under subparagraph (A)(i) to the
last day of the taxable year.
(D) Treatment of deductible items attributable to prior periods
If any portion of a deductible cash basis item is assigned
under subparagraph (C)(i) to the first day of any taxable year
-
(i) such portion shall be allocated among persons who are
partners in the partnership during the period to which such
portion is attributable in accordance with their varying
interests in the partnership during such period, and
(ii) any amount allocated under clause (i) to a person who
is not a partner in the partnership on such first day shall
be capitalized by the partnership and treated in the manner
provided for in section 755.
(3) Items attributable to interest in lower tier partnership
prorated over entire taxable year
If -
(A) during any taxable year of the partnership there is a
change in any partner's interest in the partnership
(hereinafter in this paragraph referred to as the "upper tier
partnership"), and
(B) such partnership is a partner in another partnership
(hereinafter in this paragraph referred to as the "lower tier
partnership"),
then (except to the extent provided in regulations) each
partner's distributive share of any item of the upper tier
partnership attributable to the lower tier partnership shall be
determined by assigning the appropriate portion (determined by
applying principles similar to the principles of subparagraphs
(C) and (D) of paragraph (2)) of each such item to the
appropriate days during which the upper tier partnership is a
partner in the lower tier partnership and by allocating the
portion assigned to any such day among the partners in proportion
to their interests in the upper tier partnership at the close of
such day.
(4) Taxable year determined without regard to subsection
(c)(2)(A)
For purposes of this subsection, the taxable year of a
partnership shall be determined without regard to subsection
(c)(2)(A).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 242; Pub. L. 94-455, title II,
Sec. 213(c)(1), title XIX, Sec. 1906(b)(13)(A), Oct. 4, 1976, 90
Stat. 1547, 1834; Pub. L. 98-369, div. A, title I, Sec. 72(a), (b),
July 18, 1984, 98 Stat. 589, 591; Pub. L. 99-514, title VIII, Sec.
806(a), title XVIII, Sec. 1805(a), Oct. 22, 1986, 100 Stat. 2362,
2810; Pub. L. 100-647, title I, Sec. 1008(e)(1)-(3), Nov. 10, 1988,
102 Stat. 3439, 3440; Pub. L. 105-34, title V, Sec. 507(b)(2),
title XII, Sec. 1246(a), (b), Aug. 5, 1997, 111 Stat. 857, 1030.)
-REFTEXT-
REFERENCES IN TEXT
Section 584(h), referred to in subsec. (b)(5), was redesignated
section 584(i) by Pub. L. 104-188, title I, Sec. 1805(a), 110 Stat.
1894.
-MISC1-
AMENDMENTS
1997 - Subsec. (b)(5). Pub. L. 105-34, Sec. 507(b)(2),
substituted "section 644" for "section 645".
Subsec. (c)(2). Pub. L. 105-34, Sec. 1246(b), substituted
"Treatment of dispositions" for "Partner who retires or sells
interest in partnership" as heading.
Subsec. (c)(2)(A). Pub. L. 105-34, Sec. 1246(a), amended heading
and text of subpar. (A) generally. Prior to amendment, text read as
follows: "The taxable year of a partnership shall close -
"(i) with respect to a partner who sells or exchanges his
entire interest in a partnership, and
"(ii) with respect to a partner whose interest is liquidated,
except that the taxable year of a partnership with respect to a
partner who dies shall not close prior to the end of the
partnership's taxable year."
1988 - Subsec. (b)(1)(B)(i). Pub. L. 100-647, Sec. 1008(e)(1)(A),
amended cl. (i) generally. Prior to amendment, cl. (i) read as
follows: "the taxable year of 1 or more of its partners who have an
aggregate interest in partnership profits and capital of greater
than 50 percent,".
Subsec. (b)(1)(B)(iii). Pub. L. 100-647, Sec. 1008(e)(2),
substituted "unless the Secretary by regulations prescribes another
period" for "or such other period as the Secretary may prescribe in
regulations".
Subsec. (b)(4). Pub. L. 100-647, Sec. 1008(e)(1)(B), substituted
"Majority interest taxable year; limitation on required changes"
for "Application of majority interest rule" in heading and amended
text generally. Prior to amendment, text read as follows: "Clause
(i) of paragraph (1)(B) shall not apply to any taxable year of a
partnership unless the period which constitutes the taxable year of
1 or more of its partners who have an aggregate interest in
partnership profits and capital of greater than 50 percent has been
the same for -
"(A) the 3-taxable year period of such partner or partners
ending on or before the beginning of such taxable year of the
partnership, or
"(B) if the partnership has not been in existence during all of
such 3-taxable year period, the taxable years of such partner or
partners ending with or within the period of existence.
This paragraph shall apply without regard to whether the same
partners or interests are taken into account in determining the 50
percent interest during any period."
Subsec. (b)(5). Pub. L. 100-647, Sec. 1008(e)(3), added par. (5).
1986 - Subsec. (b). Pub. L. 99-514, Sec. 806(a)(3), struck out
"Adoption of" before "taxable year" in heading.
Subsec. (b)(1). Pub. L. 99-514, Sec. 806(a)(1), amended par. (1)
generally. Prior to amendment, par. (1) read as follows: "The
taxable year of a partnership shall be determined as though the
partnership were a taxpayer. A partnership may not change to, or
adopt, a taxable year other than that of all its principal partners
unless it establishes, to the satisfaction of the Secretary, a
business purpose therefor."
Subsec. (b)(4). Pub. L. 99-514, Sec. 806(a)(2), added par. (4).
Subsec. (d)(2)(A)(i). Pub. L. 99-514, Sec. 1805(a)(1)(A),
substituted "such item" for "each such item".
Subsec. (d)(2)(B). Pub. L. 99-514, Sec. 1805(a)(1)(B), in
introductory provisions, struck out "which are described in
paragraph (1) and" after "the following items".
Subsec. (d)(2)(C)(i). Pub. L. 99-514, Sec. 1805(a)(2),
substituted "the first day of the taxable year" for "the first day
of such taxable year".
1984 - Subsec. (c)(2)(A). Pub. L. 98-369, Sec. 72(b)(1), struck
out last sentence providing that such partner's distributive share
of item described in section 702(a) for such year shall be
determined, under regulations prescribed by the Secretary, for the
period ending with such sale, exchange, or liquidation.
Subsec. (c)(2)(B). Pub. L. 98-369, Sec. 72(b)(2), struck out ",
but such partner's distributive share of items described in section
702(a) shall be determined by taking into account his varying
interests in the partnership during the taxable year" after
"otherwise)".
Subsec. (d). Pub. L. 98-369, Sec. 72(a), added subsec. (d).
1976 - Subsec. (b)(1), (2). Pub. L. 94-455, Sec. 1906(b)(13)(A),
struck out "or his delegate" after "Secretary".
Subsec. (c)(2). Pub. L. 94-455, Secs. 213(c)(1), 1906(b)(13)(A),
substituted "or with respect to a partner whose interest is reduced
(whether by entry of a new partner, partial liquidation of a
partner's interest, gift, or otherwise)" for "or with respect to a
partner whose interest is reduced", in par. (B), and struck out "or
his delegate" after "Secretary" in par. (A).
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by section 507(b)(2) of Pub. L. 105-34 applicable to
sales or exchanges after Aug. 5, 1997, see section 507(c)(2) of
Pub. L. 105-34, set out as a note under section 644 of this title.
Section 1246(c) of Pub. L. 105-34 provided that: "The amendments
made by this section [amending this section] shall apply to
partnership taxable years beginning after December 31, 1997."
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 806(a) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, with special
provisions applicable to taxpayers who are required to change their
accounting periods, see section 806(e) of Pub. L. 99-514, set out
as a note under section 1378 of this title.
Amendment by section 1805(a) of Pub. L. 99-514 effective, except
as otherwise provided, as if included in the provisions of the Tax
Reform Act of 1984, Pub. L. 98-369, div. A, to which such amendment
relates, see section 1881 of Pub. L. 99-514, set out as a note
under section 48 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Section 72(c) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendments made by this section [amending this section] shall apply
-
"(1) in the case of items described in section 706(d)(2) of the
Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as added by
subsection (a)), to amounts attributable to periods after March
31, 1984, and
"(2) in the case of items described in section 706(d)(3) of
such Code (as added by subsection (a)), to amounts paid or
accrued by the other partnership after March 31, 1984."
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 213(c)(1) of Pub. L. 94-455 applicable in
the case of partnership taxable years beginning after Dec. 31,
1975, see section 213(f) of Pub. L. 94-455, set out as an Effective
Date note under section 709 of this title.
CONSTRUCTION OF SECTION 806 OF PUB. L. 99-514
Nothing in section 806 of Pub. L. 99-514 or in any legislative
history relating thereto to be construed as requiring the Secretary
of the Treasury or his delegate to permit an automatic change of a
taxable year, see section 1008(e)(9) of Pub. L. 100-647, set out as
a note under section 1378 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 444, 704, 761, 6110 of
this title.
-FOOTNOTE-
(!1) See References in Text note below.
-End-
-CITE-
26 USC Sec. 707 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter K - Partners and Partnerships
PART I - DETERMINATION OF TAX LIABILITY
-HEAD-
Sec. 707. Transactions between partner and partnership
-STATUTE-
(a) Partner not acting in capacity as partner
(1) In general
If a partner engages in a transaction with a partnership other
than in his capacity as a member of such partnership, the
transaction shall, except as otherwise provided in this section,
be considered as occurring between the partnership and one who is
not a partner.
(2) Treatment of payments to partners for property or services
Under regulations prescribed by the Secretary -
(A) Treatment of certain services and transfers of property
If -
(i) a partner performs services for a partnership or
transfers property to a partnership,
(ii) there is a related direct or indirect allocation and
distribution to such partner, and
(iii) the performance of such services (or such transfer)
and the allocation and distribution, when viewed together,
are properly characterized as a transaction occurring between
the partnership and a partner acting other than in his
capacity as a member of the partnership,
such allocation and distribution shall be treated as a
transaction described in paragraph (1).
(B) Treatment of certain property transfers
If -
(i) there is a direct or indirect transfer of money or
other property by a partner to a partnership,
(ii) there is a related direct or indirect transfer of
money or other property by the partnership to such partner
(or another partner), and
(iii) the transfers described in clauses (i) and (ii), when
viewed together, are properly characterized as a sale or
exchange of property,
such transfers shall be treated either as a transaction
described in paragraph (1) or as a transaction between 2 or
more partners acting other than in their capacity as members of
the partnership.
(b) Certain sales or exchanges of property with respect to
controlled partnerships
(1) Losses disallowed
No deduction shall be allowed in respect of losses from sales
or exchanges of property (other than an interest in the
partnership), directly or indirectly, between -
(A) a partnership and a person owning, directly or
indirectly, more than 50 percent of the capital interest, or
the profits interest, in such partnership, or
(B) two partnerships in which the same persons own, directly
or indirectly, more than 50 percent of the capital interests or
profits interests.
In the case of a subsequent sale or exchange by a transferee
described in this paragraph, section 267(d) shall be applicable
as if the loss were disallowed under section 267(a)(1). For
purposes of section 267(a)(2), partnerships described in
subparagraph (B) of this paragraph shall be treated as persons
specified in section 267(b).
(2) Gains treated as ordinary income
In the case of a sale or exchange, directly or indirectly, of
property, which in the hands of the transferee, is property other
than a capital asset as defined in section 1221 -
(A) between a partnership and a person owning, directly or
indirectly, more than 50 percent of the capital interest, or
profits interest, in such partnership, or
(B) between two partnerships in which the same persons own,
directly or indirectly, more than 50 percent of the capital
interest or profits interests,
any gain recognized shall be considered as ordinary income.
(3) Ownership of a capital or profits interest
For purposes of paragraphs (1) and (2) of this subsection, the
ownership of a capital or profits interest in a partnership shall
be determined in accordance with the rules for constructive
ownership of stock provided in section 267(c) other than
paragraph (3) of such section.
(c) Guaranteed payments
To the extent determined without regard to the income of the
partnership, payments to a partner for services or the use of
capital shall be considered as made to one who is not a member of
the partnership, but only for the purposes of section 61(a)
(relating to gross income) and, subject to section 263, for
purposes of section 162(a) (relating to trade or business
expenses).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 243; Pub. L. 94-455, title II,
Sec. 213(b)(3), title XIX, Sec. 1901(b)(3)(C), Oct. 4, 1976, 90
Stat. 1547, 1792; Pub. L. 98-369, div. A, title I, Sec. 73(a), July
18, 1984, 98 Stat. 591; Pub. L. 99-514, title VI, Sec. 642(a)(2),
title XVIII, Secs. 1805(b), 1812(c)(3)(A), (B), Oct. 22, 1986, 100
Stat. 2284, 2810, 2834.)
-MISC1-
AMENDMENTS
1986 - Subsec. (a)(2)(B)(iii). Pub. L. 99-514, Sec. 1805(b),
substituted "sale or exchange of property" for "sale of property".
Subsec. (b)(1). Pub. L. 99-514, Sec. 1812(c)(3)(B), inserted at
end "For purposes of section 267(a)(2), partnerships described in
subparagraph (B) of this paragraph shall be treated as persons
specified in section 267(b)."
Subsec. (b)(1)(A). Pub. L. 99-514, Sec. 1812(c)(3)(A),
substituted "a person" for "a partner".
Subsec. (b)(2)(A). Pub. L. 99-514, Sec. 1812(c)(3)(A),
substituted "a person" for "a partner".
Pub. L. 99-514, Sec. 642(a)(2), substituted "50 percent" for "80
percent".
Subsec. (b)(2)(B). Pub. L. 99-514, Sec. 642(a)(2), substituted
"50 percent" for "80 percent".
1984 - Subsec. (a). Pub. L. 98-369 designated existing provisions
as par. (1) and added par. (2).
1976 - Subsec. (b)(2). Pub. L. 94-455, Sec. 1901(b)(3)(C),
substituted "as ordinary income" for "as gain from the sale or
exchange of property other than a capital asset".
Subsec. (c). Pub. L. 94-455, Sec. 213(b)(3), substituted "and,
subject to section 263, for purposes of section 162(a)" for "and
section 162(a)".
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 642(a)(2) of Pub. L. 99-514 applicable to
sales after Oct. 22, 1986, in taxable years ending after such date,
but not applicable to sales made after Aug. 14, 1986, which are
made pursuant to a binding contract in effect on Aug. 14, 1986, and
at all times thereafter, see section 642(c) of Pub. L. 99-514, set
out as a note under section 1239 of this title.
Amendment by sections 1805(b) and 1812(c)(3)(B) of Pub. L. 99-514
effective, except as otherwise provided, as if included in the
provisions of the Tax Reform Act of 1984, Pub. L. 98-369, div. A,
to which such amendment relates, see section 1881 of Pub. L.
99-514, set out as a note under section 48 of this title.
Section 1812(c)(3)(A) of Pub. L. 99-514 provided that the
amendment made by that section is effective with respect to sales
or exchanges after Sept. 27, 1985.
EFFECTIVE DATE OF 1984 AMENDMENT
Section 73(b) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - The amendment made by subsection (a) [amending
this section] shall apply -
"(A) in the case of arrangements described in section
707(a)(2)(A) of the Internal Revenue Code of 1986 [formerly
I.R.C. 1954] (as amended by subsection (a)), to services
performed or property transferred after February 29, 1984, and
"(B) in the case of transfers described in section 707(a)(2)(B)
of such Code (as so amended), to property transferred after March
31, 1984.
"(2) Binding contract exception. - The amendment made by
subsection (a) shall not apply to a transfer of property described
in section 707(a)(2)(B)(i) if such transfer is pursuant to a
binding contract in effect on March 31, 1984, and at all times
thereafter before the transfer.
"(3) Exception for certain transfers. - The amendment made by
subsection (a) shall not apply to a transfer of property described
in section 707(a)(2)(B)(i) that is made before December 31, 1984,
if -
"(A) such transfer was proposed in a written private offering
memorandum circulated before February 28, 1984;
"(B) the out-of-pocket costs incurred with respect to such
offering exceeded $250,000 as of February 28, 1984;
"(C) the encumbrances placed on such property in anticipation
of such transfer all constitute obligations for which neither the
partnership nor any partner is liable; and
"(D) the transferor of such property is the sole general
partner of the partnership."
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 213(b)(3) of Pub. L. 94-455 applicable in
the case of partnership taxable years beginning after Dec. 31,
1975, see section 213(f)(1) of Pub. L. 94-455, set out as an
Effective Date note under section 709 of this title.
Amendment by section 1901(b)(3)(C) of Pub. L. 94-455 effective
for taxable years beginning after Dec. 31, 1976, see section
1901(d) of Pub. L. 94-455, set out as a note under section 2 of
this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 42, 45D, 121, 144, 147,
163, 170, 179, 179A, 197, 213, 221, 267, 304, 351, 355, 453, 465,
469, 475, 514, 613A, 631, 643, 685, 706, 736, 860L, 871, 936, 988,
1031, 1033, 1060, 1202, 1235, 1259, 1397, 1400B, 1400C, 1402, 2701,
5881, 6038A, 6111, 7519, 7612 of this title; title 2 section 691e;
title 42 section 411.
-End-
-CITE-
26 USC Sec. 708 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter K - Partners and Partnerships
PART I - DETERMINATION OF TAX LIABILITY
-HEAD-
Sec. 708. Continuation of partnership
-STATUTE-
(a) General rule
For purposes of this subchapter, an existing partnership shall be
considered as continuing if it is not terminated.
(b) Termination
(1) General rule
For purposes of subsection (a), a partnership shall be
considered as terminated only if -
(A) no part of any business, financial operation, or venture
of the partnership continues to be carried on by any of its
partners in a partnership, or
(B) within a 12-month period there is a sale or exchange of
50 percent or more of the total interest in partnership capital
and profits.
(2) Special rules
(A) Merger or consolidation
In the case of the merger or consolidation of two or more
partnerships, the resulting partnership shall, for purposes of
this section, be considered the continuation of any merging or
consolidating partnership whose members own an interest of more
than 50 percent in the capital and profits of the resulting
partnership.
(B) Division of a partnership
In the case of a division of a partnership into two or more
partnerships, the resulting partnerships (other than any
resulting partnership the members of which had an interest of
50 percent or less in the capital and profits of the prior
partnership) shall, for purposes of this section, be considered
a continuation of the prior partnership.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 244.)
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 168, 761, 774 of this
title.
-End-
-CITE-
26 USC Sec. 709 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter K - Partners and Partnerships
PART I - DETERMINATION OF TAX LIABILITY
-HEAD-
Sec. 709. Treatment of organization and syndication fees
-STATUTE-
(a) General rule
Except as provided in subsection (b), no deduction shall be
allowed under this chapter to the partnership or to any partner for
any amounts paid or incurred to organize a partnership or to
promote the sale of (or to sell) an interest in such partnership.
(b) Amortization of organization fees
(1) Deduction
Amounts paid or incurred to organize a partnership may, at the
election of the partnership (made in accordance with regulations
prescribed by the Secretary), be treated as deferred expenses.
Such deferred expenses shall be allowed as a deduction ratably
over such period of not less than 60 months as may be selected by
the partnership (beginning with the month in which the
partnership begins business), or if the partnership is liquidated
before the end of such 60-month period, such deferred expenses
(to the extent not deducted under this section) may be deducted
to the extent provided in section 165.
(2) Organizational expenses defined
The organizational expenses to which paragraph (1) applies, are
expenditures which -
(A) are incident to the creation of the partnership;
(B) are chargeable to capital account; and
(C) are of a character which, if expended incident to the
creation of a partnership having an ascertainable life, would
be amortized over such life.
-SOURCE-
(Added Pub. L. 94-455, title II, Sec. 213(b)(1), Oct. 4, 1976, 90
Stat. 1547.)
-MISC1-
EFFECTIVE DATE
Section 213(f) of Pub. L. 94-455, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - Except as otherwise provided in this
subsection, the amendments made by this section [enacting this
section and amending sections 179, 704, 706, 707, and 761 of this
title] shall apply in the case of partnership taxable years
beginning after December 31, 1975.
"(2) Subsection (e). - The amendment made by subsection (e)
[amending section 704 of this title] shall apply to liabilities
incurred after December 31, 1976.
"(3) Section 709(b) of the code. - Section 709(b) of the Internal
Revenue Code of 1986 [formerly I.R.C. 1954] (as added by the
amendment made by subsection (b)(1) of this section) shall apply in
the case of amounts paid or incurred in taxable years beginning
after December 31, 1976."
-End-
-CITE-
26 USC PART II - CONTRIBUTIONS, DISTRIBUTIONS, AND
TRANSFERS 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter K - Partners and Partnerships
PART II - CONTRIBUTIONS, DISTRIBUTIONS, AND TRANSFERS
-HEAD-
PART II - CONTRIBUTIONS, DISTRIBUTIONS, AND TRANSFERS
-MISC1-
Subpart
A. Contributions to a partnership.
B. Distributions by a partnership.
C. Transfers of interests in a partnership.
D. Provisions common to other subparts.
-End-
-CITE-
26 USC Subpart A - Contributions to a Partnership 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter K - Partners and Partnerships
PART II - CONTRIBUTIONS, DISTRIBUTIONS, AND TRANSFERS
Subpart A - Contributions to a Partnership
-HEAD-
SUBPART A - CONTRIBUTIONS TO A PARTNERSHIP
-MISC1-
Sec.
721. Nonrecognition of gain or loss on contribution.
722. Basis of contributing partner's interest.
723. Basis of property contributed to partnership.
724. Character of gain or loss on contributed unrealized
receivables, inventory items, and capital loss
property.
AMENDMENTS
1984 - Pub. L. 98-369, div. A, title I, Sec. 74(c), July 18,
1984, 98 Stat. 593, added item 724.
-End-
-CITE-
26 USC Sec. 721 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter K - Partners and Partnerships
PART II - CONTRIBUTIONS, DISTRIBUTIONS, AND TRANSFERS
Subpart A - Contributions to a Partnership
-HEAD-
Sec. 721. Nonrecognition of gain or loss on contribution
-STATUTE-
(a) General rule
No gain or loss shall be recognized to a partnership or to any of
its partners in the case of a contribution of property to the
partnership in exchange for an interest in the partnership.
(b) Special rule
Subsection (a) shall not apply to gain realized on a transfer of
property to a partnership which would be treated as an investment
company (within the meaning of section 351) if the partnership were
incorporated.
(c) Regulations relating to certain transfers to partnerships
The Secretary may provide by regulations that subsection (a)
shall not apply to gain realized on the transfer of property to a
partnership if such gain, when recognized, will be includible in
the gross income of a person other than a United States person.
(d) Transfers of intangibles
For regulatory authority to treat intangibles transferred to
a partnership as sold, see section 367(d)(3).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 245; Pub. L. 94-455, title XXI,
Sec. 2131(b), Oct. 4, 1976, 90 Stat. 1924; Pub. L. 105-34, title
XI, Sec. 1131(b)(3), (5)(B), Aug. 5, 1997, 111 Stat. 979, 980.)
-COD-
CODIFICATION
Another section 1131(b) of Pub. L. 105-34 enacted section 684 of
this title.
-MISC1-
AMENDMENTS
1997 - Subsec. (c). Pub. L. 105-34, Sec. 1131(b)(3), added
subsec. (c).
Subsec. (d). Pub. L. 105-34, Sec. 1131(b)(5)(B), added subsec.
(d).
1976 - Pub. L. 94-455 designated existing provisions as subsec.
(a), added subsec. (a) heading "General rule", and added subsec.
(b).
EFFECTIVE DATE OF 1976 AMENDMENT
Section 2131(f)(3)-(5) of Pub. L. 94-455 provided that:
"(3) Except as provided in paragraph (4), the amendments made by
subsections (b) and (c) [amending this section and sections 722 and
723 of this title] shall apply to transfers made after February 17,
1976, in taxable years ending after such date.
"(4) The amendments made by subsections (b) and (c) shall not
apply to transfers to a partnership made on or before the 90th day
after the date of the enactment of this Act [Oct. 4, 1976] if -
"(A) either -
"(i) a ruling request with respect to such transfers was
filed with the Internal Revenue Service before March 27, 1976,
or
"(ii) a registration statement with respect to such transfers
was filed with the Securities and Exchange Commission before
March 27, 1976,
"(B) the securities transferred were deposited on or before the
60th day after the date of the enactment of this Act [Oct. 4,
1976], and
"(C) either -
"(i) the aggregate value (determined as of the close of the
60th day referred to in subparagraph (B), or, if earlier, the
close of the deposit period) of the securities so transferred
does not exceed $100,000,000, or
"(ii) the securities transferred were all on deposit on
February 29, 1976, pursuant to a registration statement
referred to in subparagraph (A)(ii).
"(5) If no registration statement was required to be filed with
the Securities and Exchange Commission with respect to the transfer
of securities to any partnership, then paragraph (4) shall be
applied to such transfers -
"(A) as if paragraph (4) did not contain subparagraph (A)(ii)
thereof, and
"(B) by substituting '$25,000,000' for '$100,000,000' in
subparagraph (C)(i) thereof."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 168, 197, 447, 722, 723,
1245, 1250, 6038B of this title.
-End-
-CITE-
26 USC Sec. 722 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter K - Partners and Partnerships
PART II - CONTRIBUTIONS, DISTRIBUTIONS, AND TRANSFERS
Subpart A - Contributions to a Partnership
-HEAD-
Sec. 722. Basis of contributing partner's interest
-STATUTE-
The basis of an interest in a partnership acquired by a
contribution of property, including money, to the partnership shall
be the amount of such money and the adjusted basis of such property
to the contributing partner at the time of the contribution
increased by the amount (if any) of gain recognized under section
721(b) to the contributing partner at such time.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 245; Pub. L. 94-455, title XXI,
Sec. 2131(c), Oct. 4, 1976, 90 Stat. 1924; Pub. L. 98-369, div. A,
title VII, Sec. 722(f)(1), July 18, 1984, 98 Stat. 974.)
-MISC1-
AMENDMENTS
1984 - Pub. L. 98-369 inserted "under section 721(b)" after "gain
recognized".
1976 - Pub. L. 94-455 inserted "increased by the amount (if any)
of gain recognized to the contributing partner at such time" after
"at the time of the contribution".
EFFECTIVE DATE OF 1984 AMENDMENT
Section 722(f)(2) of Pub. L. 98-369 provided that: "The
amendments made by paragraph (1) [amending this section and section
723 of this title] shall take effect as if included in the
amendments made by section 2131 of the Tax Reform Act of 1976 [Pub.
L. 94-455]."
EFFECTIVE DATE OF 1976 AMENDMENT
For effective date of amendment made by Pub. L. 94-455, see
section 2131(f)(3)-(5) of Pub. L. 94-455, set out as a note under
section 721 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in section 705 of this title.
-End-
-CITE-
26 USC Sec. 723 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter K - Partners and Partnerships
PART II - CONTRIBUTIONS, DISTRIBUTIONS, AND TRANSFERS
Subpart A - Contributions to a Partnership
-HEAD-
Sec. 723. Basis of property contributed to partnership
-STATUTE-
The basis of property contributed to a partnership by a partner
shall be the adjusted basis of such property to the contributing
partner at the time of the contribution increased by the amount (if
any) of gain recognized under section 721(b) to the contributing
partner at such time.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 245; Pub. L. 94-455, title XXI,
Sec. 2131(c), Oct. 4, 1976, 90 Stat. 1924; Pub. L. 98-369, div. A,
title VII, Sec. 722(f)(1), July 18, 1984, 98 Stat. 974.)
-MISC1-
AMENDMENTS
1984 - Pub. L. 98-369 inserted "under section 721(b)" after "gain
recognized".
1976 - Pub. L. 94-455 inserted "increased by the amount (if any)
of gain recognized to the contributing partner at such time" after
"at the time of the contribution".
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 effective as if included in
amendments made by section 2131 of the Tax Reform Act of 1976, Pub.
L. 94-455, see section 722(f)(2) of Pub. L. 98-369, set out as a
note under section 722 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
For effective date of amendment made by Pub. L. 94-455, see
section 2131(f)(3)-(5) of Pub. L. 94-455, set out as a note under
section 721 of this title.
-End-
-CITE-
26 USC Sec. 724 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter K - Partners and Partnerships
PART II - CONTRIBUTIONS, DISTRIBUTIONS, AND TRANSFERS
Subpart A - Contributions to a Partnership
-HEAD-
Sec. 724. Character of gain or loss on contributed unrealized
receivables, inventory items, and capital loss property
-STATUTE-
(a) Contributions of unrealized receivables
In the case of any property which -
(1) was contributed to the partnership by a partner, and
(2) was an unrealized receivable in the hands of such partner
immediately before such contribution,
any gain or loss recognized by the partnership on the disposition
of such property shall be treated as ordinary income or ordinary
loss, as the case may be.
(b) Contributions of inventory items
In the case of any property which -
(1) was contributed to the partnership by a partner, and
(2) was an inventory item in the hands of such partner
immediately before such contribution,
any gain or loss recognized by the partnership on the disposition
of such property during the 5-year period beginning on the date of
such contribution shall be treated as ordinary income or ordinary
loss, as the case may be.
(c) Contributions of capital loss property
In the case of any property which -
(1) was contributed by a partner to the partnership, and
(2) was a capital asset in the hands of such partner
immediately before such contribution,
any loss recognized by the partnership on the disposition of such
property during the 5-year period beginning on the date of such
contribution shall be treated as a loss from the sale of a capital
asset to the extent that, immediately before such contribution, the
adjusted basis of such property in the hands of the partner
exceeded the fair market value of such property.
(d) Definitions
For purposes of this section -
(1) Unrealized receivable
The term "unrealized receivable" has the meaning given such
term by section 751(c) (determined by treating any reference to
the partnership as referring to the partner).
(2) Inventory item
The term "inventory item" has the meaning given such term by
section 751(d) (determined by treating any reference to the
partnership as referring to the partner and by applying section
1231 without regard to any holding period therein provided).
(3) Substituted basis property
(A) In general
If any property described in subsection (a), (b), or (c) is
disposed of in a nonrecognition transaction, the tax treatment
which applies to such property under such subsection shall also
apply to any substituted basis property resulting from such
transaction. A similar rule shall also apply in the case of a
series of non-recognition transactions.
(B) Exception for stock in C corporation
Subparagraph (A) shall not apply to any stock in a C
corporation received in an exchange described in section 351.
-SOURCE-
(Added Pub. L. 98-369, div. A, title I, Sec. 74(a), July 18, 1984,
98 Stat. 592; amended Pub. L. 104-188, title I, Sec. 1704(t)(63),
Aug. 20, 1996, 110 Stat. 1890; Pub. L. 105-34, title X, Sec.
1062(b)(3), Aug. 5, 1997, 111 Stat. 947.)
-MISC1-
AMENDMENTS
1997 - Subsec. (d)(2). Pub. L. 105-34 substituted "section
751(d)" for "section 751(d)(2)".
1996 - Subsec. (d)(3)(B). Pub. L. 104-188 substituted
"Subparagraph" for "Subparagaph".
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1062(c) of Pub. L. 105-34 provided that:
"(1) In general. - The amendments made by this section [amending
this section and sections 731, 732, 735, and 751 of this title]
shall apply to sales, exchanges, and distributions after the date
of the enactment of this Act [Aug. 5, 1997].
"(2) Binding contracts. - The amendments made by this section
shall not apply to any sale or exchange pursuant to a written
binding contract in effect on June 8, 1997, and at all times
thereafter before such sale or exchange."
EFFECTIVE DATE
Section 74(d)(1) of Pub. L. 98-369 provided that: "The amendment
made by subsection (a) [enacting this section] shall apply to
property contributed to a partnership after March 31, 1984, in
taxable years ending after such date."
-End-
-CITE-
26 USC Subpart B - Distributions by a Partnership 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter K - Partners and Partnerships
PART II - CONTRIBUTIONS, DISTRIBUTIONS, AND TRANSFERS
Subpart B - Distributions by a Partnership
-HEAD-
SUBPART B - DISTRIBUTIONS BY A PARTNERSHIP
-MISC1-
Sec.
731. Extent of recognition of gain or loss on distribution.
732. Basis of distributed property other than money.
733. Basis of distributee partner's interest.
734. Optional adjustment to basis of undistributed
partnership property.
735. Character of gain or loss on disposition of
distributed property.
736. Payments to a retiring partner or a deceased partner's
successor in interest.
737. Recognition of precontribution gain in case of certain
distributions to contributing partner.
AMENDMENTS
1992 - Pub. L. 102-486, title XIX, Sec. 1937(b)(3), Oct. 24,
1992, 106 Stat. 3033, added item 737.
-End-
-CITE-
26 USC Sec. 731 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter K - Partners and Partnerships
PART II - CONTRIBUTIONS, DISTRIBUTIONS, AND TRANSFERS
Subpart B - Distributions by a Partnership
-HEAD-
Sec. 731. Extent of recognition of gain or loss on distribution
-STATUTE-
(a) Partners
In the case of a distribution by a partnership to a partner -
(1) gain shall not be recognized to such partner, except to the
extent that any money distributed exceeds the adjusted basis of
such partner's interest in the partnership immediately before the
distribution, and
(2) loss shall not be recognized to such partner, except that
upon a distribution in liquidation of a partner's interest in a
partnership where no property other than that described in
subparagraph (A) or (B) is distributed to such partner, loss
shall be recognized to the extent of the excess of the adjusted
basis of such partner's interest in the partnership over the sum
of -
(A) any money distributed, and
(B) the basis to the distributee, as determined under section
732, of any unrealized receivables (as defined in section
751(c)) and inventory (as defined in section 751(d)).
Any gain or loss recognized under this subsection shall be
considered as gain or loss from the sale or exchange of the
partnership interest of the distributee partner.
(b) Partnerships
No gain or loss shall be recognized to a partnership on a
distribution to a partner of property, including money.
(c) Treatment of marketable securities
(1) In general
For purposes of subsection (a)(1) and section 737 -
(A) the term "money" includes marketable securities, and
(B) such securities shall be taken into account at their fair
market value as of the date of the distribution.
(2) Marketable securities
For purposes of this subsection:
(A) In general
The term "marketable securities" means financial instruments
and foreign currencies which are, as of the date of the
distribution, actively traded (within the meaning of section
1092(d)(1)).
(B) Other property
Such term includes -
(i) any interest in -
(I) a common trust fund, or
(II) a regulated investment company which is offering for
sale or has outstanding any redeemable security (as defined
in section 2(a)(32) of the Investment Company Act of 1940)
of which it is the issuer,
(ii) any financial instrument which, pursuant to its terms
or any other arrangement, is readily convertible into, or
exchangeable for, money or marketable securities,
(iii) any financial instrument the value of which is
determined substantially by reference to marketable
securities,
(iv) except to the extent provided in regulations
prescribed by the Secretary, any interest in a precious metal
which, as of the date of the distribution, is actively traded
(within the meaning of section 1092(d)(1)) unless such metal
was produced, used, or held in the active conduct of a trade
or business by the partnership,
(v) except as otherwise provided in regulations prescribed
by the Secretary, interests in any entity if substantially
all of the assets of such entity consist (directly or
indirectly) of marketable securities, money, or both, and
(vi) to the extent provided in regulations prescribed by
the Secretary, any interest in an entity not described in
clause (v) but only to the extent of the value of such
interest which is attributable to marketable securities,
money, or both.
(C) Financial instrument
The term "financial instrument" includes stocks and other
equity interests, evidences of indebtedness, options, forward
or futures contracts, notional principal contracts, and
derivatives.
(3) Exceptions
(A) In general
Paragraph (1) shall not apply to the distribution from a
partnership of a marketable security to a partner if -
(i) the security was contributed to the partnership by such
partner, except to the extent that the value of the
distributed security is attributable to marketable securities
or money contributed (directly or indirectly) to the entity
to which the distributed security relates,
(ii) to the extent provided in regulations prescribed by
the Secretary, the property was not a marketable security
when acquired by such partnership, or
(iii) such partnership is an investment partnership and
such partner is an eligible partner thereof.
(B) Limitation on gain recognized
In the case of a distribution of marketable securities to a
partner, the amount taken into account under paragraph (1)
shall be reduced (but not below zero) by the excess (if any) of
-
(i) such partner's distributive share of the net gain which
would be recognized if all of the marketable securities of
the same class and issuer as the distributed securities held
by the partnership were sold (immediately before the
transaction to which the distribution relates) by the
partnership for fair market value, over
(ii) such partner's distributive share of the net gain
which is attributable to the marketable securities of the
same class and issuer as the distributed securities held by
the partnership immediately after the transaction, determined
by using the same fair market value as used under clause (i).
Under regulations prescribed by the Secretary, all marketable
securities held by the partnership may be treated as marketable
securities of the same class and issuer as the distributed
securities.
(C) Definitions relating to investment partnerships
For purposes of subparagraph (A)(iii):
(i) Investment partnership
The term "investment partnership" means any partnership
which has never been engaged in a trade or business and
substantially all of the assets (by value) of which have
always consisted of -
(I) money,
(II) stock in a corporation,
(III) notes, bonds, debentures, or other evidences of
indebtedness,
(IV) interest rate, currency, or equity notional
principal contracts,
(V) foreign currencies,
(VI) interests in or derivative financial instruments
(including options, forward or futures contracts, short
positions, and similar financial instruments) in any asset
described in any other subclause of this clause or in any
commodity traded on or subject to the rules of a board of
trade or commodity exchange,
(VII) other assets specified in regulations prescribed by
the Secretary, or
(VIII) any combination of the foregoing.
(ii) Exception for certain activities
A partnership shall not be treated as engaged in a trade or
business by reason of -
(I) any activity undertaken as an investor, trader, or
dealer in any asset described in clause (i), or
(II) any other activity specified in regulations
prescribed by the Secretary.
(iii) Eligible partner
(I) In general
The term "eligible partner" means any partner who, before
the date of the distribution, did not contribute to the
partnership any property other than assets described in
clause (i).
(II) Exception for certain nonrecognition transactions
The term "eligible partner" shall not include the
transferor or transferee in a nonrecognition transaction
involving a transfer of any portion of an interest in a
partnership with respect to which the transferor was not an
eligible partner.
(iv) Look-thru of partnership tiers
Except as otherwise provided in regulations prescribed by
the Secretary -
(I) a partnership shall be treated as engaged in any
trade or business engaged in by, and as holding (instead of
a partnership interest) a proportionate share of the assets
of, any other partnership in which the partnership holds a
partnership interest, and
(II) a partner who contributes to a partnership an
interest in another partnership shall be treated as
contributing a proportionate share of the assets of the
other partnership.
If the preceding sentence does not apply under such
regulations with respect to any interest held by a
partnership in another partnership, the interest in such
other partnership shall be treated as if it were specified in
a subclause of clause (i).
(4) Basis of securities distributed
(A) In general
The basis of marketable securities with respect to which gain
is recognized by reason of this subsection shall be -
(i) their basis determined under section 732, increased by
(ii) the amount of such gain.
(B) Allocation of basis increase
Any increase in basis attributable to the gain described in
subparagraph (A)(ii) shall be allocated to marketable
securities in proportion to their respective amounts of
unrealized appreciation before such increase.
(5) Subsection disregarded in determining basis of partner's
interest in partnership and of basis of partnership property
Sections 733 and 734 shall be applied as if no gain were
recognized, and no adjustment were made to the basis of property,
under this subsection.
(6) Character of gain recognized
In the case of a distribution of a marketable security which is
an unrealized receivable (as defined in section 751(c)) or an
inventory item (as defined in section 751(d)), any gain
recognized under this subsection shall be treated as ordinary
income to the extent of any increase in the basis of such
security attributable to the gain described in paragraph
(4)(A)(ii).
(7) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this
subsection, including regulations to prevent the avoidance of
such purposes.
(d) Exceptions
This section shall not apply to the extent otherwise provided by
section 736 (relating to payments to a retiring partner or a
deceased partner's successor in interest), section 751 (relating to
unrealized receivables and inventory items), and section 737
(relating to recognition of precontribution gain in case of certain
distributions).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 245; Pub. L. 102-486, title XIX,
Sec. 1937(b)(2), Oct. 24, 1992, 106 Stat. 3033; Pub. L. 103-465,
title VII, Sec. 741(a), Dec. 8, 1994, 108 Stat. 5006; Pub. L.
105-34, title X, Sec. 1062(b)(3), Aug. 5, 1997, 111 Stat. 947.)
-REFTEXT-
REFERENCES IN TEXT
Section 2(a)(32) of the Investment Company Act of 1940, referred
to in subsec. (c)(2)(B)(i)(II), is classified to section
80a-2(a)(32) of Title 15, Commerce and Trade.
-MISC1-
AMENDMENTS
1997 - Subsecs. (a)(2)(B), (c)(6). Pub. L. 105-34 substituted
"section 751(d)" for "section 751(d)(2)".
1994 - Subsecs. (c), (d). Pub. L. 103-465 added subsec. (c) and
redesignated former subsec. (c) as (d).
1992 - Subsec. (c). Pub. L. 102-486 substituted ", section 751"
for "and section 751" and inserted before period at end ", and
section 737 (relating to recognition of precontribution gain in
case of certain distributions)".
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 applicable to sales, exchanges, and
distributions after Aug. 5, 1997, but not applicable to any sale or
exchange pursuant to a written binding contract in effect on June
8, 1997, and at all times thereafter before such sale or exchange,
see section 1062(c) of Pub. L. 105-34, set out as a note under
section 724 of this title.
EFFECTIVE DATE OF 1994 AMENDMENT
Section 741(c) of Pub. L. 103-465 provided that:
"(1) In general. - Except as otherwise provided in this
subsection, the amendments made by this section [amending this
section and section 737 of this title] shall apply to distributions
after the date of the enactment of this Act [Dec. 8, 1994].
"(2) Certain distributions before january 1, 1995. - The
amendments made by this section shall not apply to any marketable
security distributed before January 1, 1995, by the partnership
which held such security on July 27, 1994.
"(3) Distributions in liquidation of partner's interest. - The
amendments made by this section shall not apply to the distribution
of a marketable security in liquidation of a partner's interest in
a partnership if -
"(A) such liquidation is pursuant to a written contract which
was binding on July 15, 1994, and at all times thereafter before
the distribution, and
"(B) such contract provides for the purchase of such interest
not later than a date certain for -
"(i) a fixed value of marketable securities that are
specified in the contract, or
"(ii) other property.
The preceding sentence shall not apply if the partner has the right
to elect that such distribution be made other than in marketable
securities.
"(4) Distributions in complete liquidation of publicly traded
partnerships. -
"(A) In general. - The amendments made by this section shall
not apply to the distribution of a marketable security in a
qualified partnership liquidation if -
"(i) the marketable securities were received by the
partnership in a nonrecognition transaction in exchange for
substantially all of the assets of the partnership,
"(ii) the marketable securities are distributed by the
partnership within 90 days after their receipt by the
partnership, and
"(iii) the partnership is liquidated before the beginning of
the 1st taxable year of the partnership beginning after
December 31, 1997.
"(B) Qualified partnership liquidation. - For purposes of
subparagraph (A), the term 'qualified partnership liquidation'
means -
"(i) a complete liquidation of a publicly traded partnership
(as defined in section 7704(b) of the Internal Revenue Code of
1986) which is an existing partnership (as defined in section
10211(c)(2) of the Revenue Act of 1987 [Pub. L. 100-203, set
out as an Effective Date note under section 7704 of this
title]), and
"(ii) a complete liquidation of a partnership which is
related to a partnership described in clause (i) if such
liquidation is related to a complete liquidation of the
partnership described in clause (i).
"(5) Marketable securities. - For purposes of this subsection,
the term 'marketable securities' has the meaning given such term by
section 731(c) of the Internal Revenue Code of 1986, as added by
this section."
EFFECTIVE DATE OF 1992 AMENDMENT
Amendment by Pub. L. 102-486 applicable to distributions on or
after June 25, 1992, see section 1937(c) of Pub. L. 102-486, set
out as a note under section 704 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 168, 197, 734, 737, 751,
1245, 1250 of this title; title 11 section 548.
-End-
-CITE-
26 USC Sec. 732 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter K - Partners and Partnerships
PART II - CONTRIBUTIONS, DISTRIBUTIONS, AND TRANSFERS
Subpart B - Distributions by a Partnership
-HEAD-
Sec. 732. Basis of distributed property other than money
-STATUTE-
(a) Distributions other than in liquidation of a partner's interest
(1) General rule
The basis of property (other than money) distributed by a
partnership to a partner other than in liquidation of the
partner's interest shall, except as provided in paragraph (2), be
its adjusted basis to the partnership immediately before such
distribution.
(2) Limitation
The basis to the distributee partner of property to which
paragraph (1) is applicable shall not exceed the adjusted basis
of such partner's interest in the partnership reduced by any
money distributed in the same transaction.
(b) Distributions in liquidation
The basis of property (other than money) distributed by a
partnership to a partner in liquidation of the partner's interest
shall be an amount equal to the adjusted basis of such partner's
interest in the partnership reduced by any money distributed in the
same transaction.
(c) Allocation of basis
(1) In general
The basis of distributed properties to which subsection (a)(2)
or (b) is applicable shall be allocated -
(A)(i) first to any unrealized receivables (as defined in
section 751(c)) and inventory items (as defined in section
751(d)) in an amount equal to the adjusted basis of each such
property to the partnership, and
(ii) if the basis to be allocated is less than the sum of the
adjusted bases of such properties to the partnership, then, to
the extent any decrease is required in order to have the
adjusted bases of such properties equal the basis to be
allocated, in the manner provided in paragraph (3), and
(B) to the extent of any basis remaining after the allocation
under subparagraph (A), to other distributed properties -
(i) first by assigning to each such other property such
other property's adjusted basis to the partnership, and
(ii) then, to the extent any increase or decrease in basis
is required in order to have the adjusted bases of such other
distributed properties equal such remaining basis, in the
manner provided in paragraph (2) or (3), whichever is
appropriate.
(2) Method of allocating increase
Any increase required under paragraph (1)(B) shall be allocated
among the properties -
(A) first to properties with unrealized appreciation in
proportion to their respective amounts of unrealized
appreciation before such increase (but only to the extent of
each property's unrealized appreciation), and
(B) then, to the extent such increase is not allocated under
subparagraph (A), in proportion to their respective fair market
values.
(3) Method of allocating decrease
Any decrease required under paragraph (1)(A) or (1)(B) shall be
allocated -
(A) first to properties with unrealized depreciation in
proportion to their respective amounts of unrealized
depreciation before such decrease (but only to the extent of
each property's unrealized depreciation), and
(B) then, to the extent such decrease is not allocated under
subparagraph (A), in proportion to their respective adjusted
bases (as adjusted under subparagraph (A)).
(d) Special partnership basis to transferee
For purposes of subsections (a), (b), and (c), a partner who
acquired all or a part of his interest by a transfer with respect
to which the election provided in section 754 is not in effect, and
to whom a distribution of property (other than money) is made with
respect to the transferred interest within 2 years after such
transfer, may elect, under regulations prescribed by the Secretary,
to treat as the adjusted partnership basis of such property the
adjusted basis such property would have if the adjustment provided
in section 743(b) were in effect with respect to the partnership
property. The Secretary may by reg |
