-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 regulations require the application
of this subsection in the case of a distribution to a transferee
partner, whether or not made within 2 years after the transfer, if
at the time of the transfer the fair market value of the
partnership property (other than money) exceeded 110 percent of its
adjusted basis to the partnership.
(e) Exception
This section shall not apply to the extent that a distribution is
treated as a sale or exchange of property under section 751(b)
(relating to unrealized receivables and inventory items).
(f) Corresponding adjustment to basis of assets of a distributed
corporation controlled by a corporate partner
(1) In general
If -
(A) a corporation (hereafter in this subsection referred to
as the "corporate partner") receives a distribution from a
partnership of stock in another corporation (hereafter in this
subsection referred to as the "distributed corporation"),
(B) the corporate partner has control of the distributed
corporation immediately after the distribution or at any time
thereafter, and
(C) the partnership's adjusted basis in such stock
immediately before the distribution exceeded the corporate
partner's adjusted basis in such stock immediately after the
distribution,
then an amount equal to such excess shall be applied to reduce
(in accordance with subsection (c)) the basis of property held by
the distributed corporation at such time (or, if the corporate
partner does not control the distributed corporation at such
time, at the time the corporate partner first has such control).
(2) Exception for certain distributions before control acquired
Paragraph (1) shall not apply to any distribution of stock in
the distributed corporation if -
(A) the corporate partner does not have control of such
corporation immediately after such distribution, and
(B) the corporate partner establishes to the satisfaction of
the Secretary that such distribution was not part of a plan or
arrangement to acquire control of the distributed corporation.
(3) Limitations on basis reduction
(A) In general
The amount of the reduction under paragraph (1) shall not
exceed the amount by which the sum of the aggregate adjusted
bases of the property and the amount of money of the
distributed corporation exceeds the corporate partner's
adjusted basis in the stock of the distributed corporation.
(B) Reduction not to exceed adjusted basis of property
No reduction under paragraph (1) in the basis of any property
shall exceed the adjusted basis of such property (determined
without regard to such reduction).
(4) Gain recognition where reduction limited
If the amount of any reduction under paragraph (1) (determined
after the application of paragraph (3)(A)) exceeds the aggregate
adjusted bases of the property of the distributed corporation -
(A) such excess shall be recognized by the corporate partner
as long-term capital gain, and
(B) the corporate partner's adjusted basis in the stock of
the distributed corporation shall be increased by such excess.
(5) Control
For purposes of this subsection, the term "control" means
ownership of stock meeting the requirements of section
1504(a)(2).
(6) Indirect distributions
For purposes of paragraph (1), if a corporation acquires (other
than in a distribution from a partnership) stock the basis of
which is determined (by reason of being distributed from a
partnership) in whole or in part by reference to subsection
(a)(2) or (b), the corporation shall be treated as receiving a
distribution of such stock from a partnership.
(7) Special rule for stock in controlled corporation
If the property held by a distributed corporation is stock in a
corporation which the distributed corporation controls, this
subsection shall be applied to reduce the basis of the property
of such controlled corporation. This subsection shall be
reapplied to any property of any controlled corporation which is
stock in a corporation which it controls.
(8) Regulations
The Secretary shall prescribe such regulations as may be
necessary to carry out the purposes of this subsection, including
regulations to avoid double counting and to prevent the abuse of
such purposes.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 246; Pub. L. 94-455, title XIX,
Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 105-34,
title X, Secs. 1061(a), 1062(b)(3), Aug. 5, 1997, 111 Stat. 945,
947; Pub. L. 106-170, title V, Sec. 538(a), Dec. 17, 1999, 113
Stat. 1939.)
-MISC1-
AMENDMENTS
1999 - Subsec. (f). Pub. L. 106-170 added subsec. (f).
1997 - Subsec. (c). Pub. L. 105-34, Sec. 1061(a), amended heading
and text of subsec. (c) generally. Prior to amendment, text read as
follows: "The basis of distributed properties to which subsection
(a)(2) or subsection (b) is applicable shall be allocated -
"(1) first to any unrealized receivables (as defined in section
751(c)) and inventory items (as defined in section 751(d)(2)) in
an amount equal to the adjusted basis of each such property to
the partnership (or if the basis to be allocated is less than the
sum of the adjusted bases of such properties to the partnership,
in proportion to such bases), and
"(2) to the extent of any remaining basis, to any other
distributed properties in proportion to their adjusted bases to
the partnership."
Subsec. (c)(1)(A)(i). Pub. L. 105-34, Sec. 1062(b)(3),
substituted "section 751(d)" for "section 751(d)(2)".
1976 - Subsec. (d). Pub. L. 94-455 struck out "or his delegate"
after "Secretary".
EFFECTIVE DATE OF 1999 AMENDMENT
Pub. L. 106-170, title V, Sec. 538(b), Dec. 17, 1999, 113 Stat.
1940, provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendment made by this section [amending this section] shall apply
to distributions made after July 14, 1999.
"(2) Partnerships in existence on July 14, 1999. - In the case of
a corporation which is a partner in a partnership as of July 14,
1999, the amendment made by this section shall apply to any
distribution made (or treated as made) to such partner from such
partnership after June 30, 2001, except that this paragraph shall
not apply to any distribution after the date of the enactment of
this Act [Dec. 17, 1999] unless the partner makes an election to
have this paragraph apply to such distribution on the partner's
return of Federal income tax for the taxable year in which such
distribution occurs."
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1061(b) of Pub. L. 105-34 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
distributions after the date of the enactment of this Act [Aug. 5,
1997]."
Amendment by section 1062(b)(3) of 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.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 197, 613A, 731, 733, 734,
751, 1276 of this title.
-End-
-CITE-
26 USC Sec. 733 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. 733. Basis of distributee partner's interest
-STATUTE-
In the case of a distribution by a partnership to a partner other
than in liquidation of a partner's interest, the adjusted basis to
such partner of his interest in the partnership shall be reduced
(but not below zero) by -
(1) the amount of any money distributed to such partner, and
(2) the amount of the basis to such partner of distributed
property other than money, as determined under section 732.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 247.)
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 705, 731 of this title.
-End-
-CITE-
26 USC Sec. 734 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. 734. Optional adjustment to basis of undistributed partnership
property
-STATUTE-
(a) General rule
The basis of partnership property shall not be adjusted as the
result of a distribution of property to a partner unless the
election, provided in section 754 (relating to optional adjustment
to basis of partnership property), is in effect with respect to
such partnership.
(b) Method of adjustment
In the case of a distribution of property to a partner, a
partnership, with respect to which the election provided in section
754 is in effect, shall -
(1) increase the adjusted basis of partnership property by -
(A) the amount of any gain recognized to the distributee
partner with respect to such distribution under section
731(a)(1), and
(B) in the case of distributed property to which section
732(a)(2) or (b) applies, the excess of the adjusted basis of
the distributed property to the partnership immediately before
the distribution (as adjusted by section 732(d)) over the basis
of the distributed property to the distributee, as determined
under section 732, or
(2) decrease the adjusted basis of partnership property by -
(A) the amount of any loss recognized to the distributee
partner with respect to such distribution under section
731(a)(2), and
(B) in the case of distributed property to which section
732(b) applies, the excess of the basis of the distributed
property to the distributee, as determined under section 732,
over the adjusted basis of the distributed property to the
partnership immediately before such distribution (as adjusted
by section 732(d)).
Paragraph (1)(B) shall not apply to any distributed property which
is an interest in another partnership with respect to which the
election provided in section 754 is not in effect.
(c) Allocation of basis
The allocation of basis among partnership properties where
subsection (b) is applicable shall be made in accordance with the
rules provided in section 755.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 247; Pub. L. 98-369, div. A,
title I, Sec. 78(a), July 18, 1984, 98 Stat. 597.)
-MISC1-
AMENDMENTS
1984 - Subsec. (b). Pub. L. 98-369 inserted at end "Paragraph
(1)(B) shall not apply to any distributed property which is an
interest in another partnership with respect to which the election
provided in section 754 is not in effect."
EFFECTIVE DATE OF 1984 AMENDMENT
Section 78(b) of Pub. L. 98-369 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
distributions after March 1, 1984, in taxable years ending after
such date."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 197, 731, 754, 755 of
this title.
-End-
-CITE-
26 USC Sec. 735 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. 735. Character of gain or loss on disposition of distributed
property
-STATUTE-
(a) Sale or exchange of certain distributed property
(1) Unrealized receivables
Gain or loss on the disposition by a distributee partner of
unrealized receivables (as defined in section 751(c)) distributed
by a partnership, shall be considered as ordinary income or as
ordinary loss, as the case may be.
(2) Inventory items
Gain or loss on the sale or exchange by a distributee partner
of inventory items (as defined in section 751(d)) distributed by
a partnership shall, if sold or exchanged within 5 years from the
date of the distribution, be considered as ordinary income or as
ordinary loss, as the case may be.
(b) Holding period for distributed property
In determining the period for which a partner has held property
received in a distribution from a partnership (other than for
purposes of subsection (a)(2)), there shall be included the holding
period of the partnership, as determined under section 1223, with
respect to such property.
(c) Special rules
(1) Waiver of holding periods contained in section 1231
For purposes of this section, section 751(d) (defining
inventory item) shall be applied without regard to any holding
period in section 1231(b).
(2) Substituted basis property
(A) In general
If any property described in subsection (a) 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
nonrecognition 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-
(Aug. 16, 1954, ch. 763, 68A Stat. 247; Pub. L. 94-455, title XIX,
Sec. 1901(b)(3)(D), Oct. 4, 1976, 90 Stat. 1792; Pub. L. 98-369,
div. A, title I, Sec. 74(b), July 18, 1984, 98 Stat. 593; Pub. L.
105-34, title X, Sec. 1062(b)(3), Aug. 5, 1997, 111 Stat. 947.)
-MISC1-
AMENDMENTS
1997 - Subsecs. (a)(2), (c)(1). Pub. L. 105-34 substituted
"section 751(d)" for "section 751(d)(2)".
1984 - Subsec. (c). Pub. L. 98-369 added subsec. (c).
1976 - Subsec. (a)(1), (2). Pub. L. 94-455 substituted "as
ordinary income or as ordinary loss, as the case may be" for "gain
or loss from the sale or exchange of property other than a capital
asset".
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 1984 AMENDMENT
Section 74(d)(2) of Pub. L. 98-369 provided that: "The amendment
made by subsection (b) [amending this section] shall apply to
property distributed after March 31, 1984, in taxable years ending
after such date."
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by 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.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in section 1223 of this title.
-End-
-CITE-
26 USC Sec. 736 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. 736. Payments to a retiring partner or a deceased partner's
successor in interest
-STATUTE-
(a) Payments considered as distributive share or guaranteed payment
Payments made in liquidation of the interest of a retiring
partner or a deceased partner shall, except as provided in
subsection (b), be considered -
(1) as a distributive share to the recipient of partnership
income if the amount thereof is determined with regard to the
income of the partnership, or
(2) as a guaranteed payment described in section 707(c) if the
amount thereof is determined without regard to the income of the
partnership.
(b) Payments for interest in partnership
(1) General rule
Payments made in liquidation of the interest of a retiring
partner or a deceased partner shall, to the extent such payments
(other than payments described in paragraph (2)) are determined,
under regulations prescribed by the Secretary, to be made in
exchange for the interest of such partner in partnership
property, be considered as a distribution by the partnership and
not as a distributive share or guaranteed payment under
subsection (a).
(2) Special rules
For purposes of this subsection, payments in exchange for an
interest in partnership property shall not include amounts paid
for -
(A) unrealized receivables of the partnership (as defined in
section 751(c)), or
(B) good will of the partnership, except to the extent that
the partnership agreement provides for a payment with respect
to good will.
(3) Limitation on application of paragraph (2)
Paragraph (2) shall apply only if -
(A) capital is not a material income-producing factor for the
partnership, and
(B) the retiring or deceased partner was a general partner in
the partnership.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 248; Pub. L. 94-455, title XIX,
Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 95-600,
title VII, Sec. 701(u)(13)(B), Nov. 6, 1978, 92 Stat. 2918; Pub. L.
103-66, title XIII, Sec. 13262(a), (b)(2)(B), Aug. 10, 1993, 107
Stat. 541.)
-MISC1-
AMENDMENTS
1993 - Subsec. (b)(3). Pub. L. 103-66, Sec. 13262(a), added par.
(3).
Subsec. (c). Pub. L. 103-66, Sec. 13262(b)(2)(B), struck out
heading and text of subsec. (c). Text read as follows: "For
limitation on the tax attributable to certain gain connected with
section 1248 stock, see section 751(e)."
1978 - Subsec. (c). Pub. L. 95-600 added subsec. (c).
1976 - Subsec. (b)(1). Pub. L. 94-455 struck out "or his
delegate" after "Secretary".
EFFECTIVE DATE OF 1993 AMENDMENT
Section 13262(c) of Pub. L. 103-66 provided that:
"(1) In general. - The amendments made by this section [amending
this section and section 751 of this title] shall apply in the case
of partners retiring or dying on or after January 5, 1993.
"(2) Binding contract exception. - The amendments made by this
section shall not apply to any partner retiring on or after January
5, 1993, if a written contract to purchase such partner's interest
in the partnership was binding on January 4, 1993, and at all times
thereafter before such purchase."
EFFECTIVE DATE OF 1978 AMENDMENT
Amendment by Pub. L. 95-600 applicable to transfers beginning
after Oct. 9, 1975, and to sales, exchanges, and distributions
taking place after Oct. 9, 1975, see section 701(u)(13)(C) of Pub.
L. 95-600, set out as a note under section 751 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 357, 731, 751, 753 of
this title; title 29 sections 1051, 1081, 1101.
-End-
-CITE-
26 USC Sec. 737 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. 737. Recognition of precontribution gain in case of certain
distributions to contributing partner
-STATUTE-
(a) General rule
In the case of any distribution by a partnership to a partner,
such partner shall be treated as recognizing gain in an amount
equal to the lesser of -
(1) the excess (if any) of (A) the fair market value of
property (other than money) received in the distribution over (B)
the adjusted basis of such partner's interest in the partnership
immediately before the distribution reduced (but not below zero)
by the amount of money received in the distribution, or
(2) the net precontribution gain of the partner.
Gain recognized under the preceding sentence shall be in addition
to any gain recognized under section 731. The character of such
gain shall be determined by reference to the proportionate
character of the net precontribution gain.
(b) Net precontribution gain
For purposes of this section, the term "net precontribution gain"
means the net gain (if any) which would have been recognized by the
distributee partner under section 704(c)(1)(B) if all property
which -
(1) had been contributed to the partnership by the distributee
partner within 7 years of the distribution, and
(2) is held by such partnership immediately before the
distribution,
had been distributed by such partnership to another partner.
(c) Basis rules
(1) Partner's interest
The adjusted basis of a partner's interest in a partnership
shall be increased by the amount of any gain recognized by such
partner under subsection (a). For purposes of determining the
basis of the distributed property (other than money), such
increase shall be treated as occurring immediately before the
distribution.
(2) Partnership's basis in contributed property
Appropriate adjustments shall be made to the adjusted basis of
the partnership in the contributed property referred to in
subsection (b) to reflect gain recognized under subsection (a).
(d) Exceptions
(1) Distributions of previously contributed property
If any portion of the property distributed consists of property
which had been contributed by the distributee partner to the
partnership, such property shall not be taken into account under
subsection (a)(1) and shall not be taken into account in
determining the amount of the net precontribution gain. If the
property distributed consists of an interest in an entity, the
preceding sentence shall not apply to the extent that the value
of such interest is attributable to property contributed to such
entity after such interest had been contributed to the
partnership.
(2) Coordination with section 751
This section shall not apply to the extent section 751(b)
applies to such distribution.
(e) Marketable securities treated as money
For treatment of marketable securities as money for purposes
of this section, see section 731(c).
-SOURCE-
(Added Pub. L. 102-486, title XIX, Sec. 1937(a), Oct. 24, 1992, 106
Stat. 3032; amended Pub. L. 103-465, title VII, Sec. 741(b), Dec.
8, 1994, 108 Stat. 5009; Pub. L. 104-188, title I, Sec. 1704(j)(8),
Aug. 20, 1996, 110 Stat. 1882; Pub. L. 105-34, title X, Sec.
1063(a), Aug. 5, 1997, 111 Stat. 947.)
-MISC1-
AMENDMENTS
1997 - Subsec. (b)(1). Pub. L. 105-34 substituted "7 years" for
"5 years".
1996 - Pub. L. 104-188 provided that section 1937(a) of Pub. L.
102-486, shall be applied as if "Subpart B" appeared instead of
"Subpart C". Section 1937(a) of Pub. L. 102-486 directed amendment
of subpart C of this part by adding this section at the end
thereof.
1994 - Subsec. (c)(1). Pub. L. 103-465, Sec. 741(b)(1), amended
last sentence generally. Prior to amendment, last sentence read as
follows: "Except for purposes of determining the amount recognized
under subsection (a), such increase shall be treated as occurring
immediately before the distribution."
Subsec. (e). Pub. L. 103-465, Sec. 741(b)(2), added subsec. (e).
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 applicable to property contributed to
a partnership after June 8, 1997, but not applicable 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, see section 1063(b) of Pub. L. 105-34,
set out as a note under section 704 of this title.
EFFECTIVE DATE OF 1994 AMENDMENT
Amendment by Pub. L. 103-465 applicable to distributions after
Dec. 8, 1994, and not applicable to certain distributions before
Jan. 1, 1995, distributions in liquidation of partner's interest,
or distributions in complete liquidation of publicly traded
partnerships, see section 741(c) of Pub. L. 103-465, set out as a
note under section 731 of this title.
EFFECTIVE DATE
Section applicable to distributions on or after June 25, 1992,
see section 1937(c) of Pub. L. 102-486, set out as an Effective
Date of 1992 Amendment note under section 704 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in section 731 of this title.
-End-
-CITE-
26 USC Subpart C - Transfers of Interests in 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 C - Transfers of Interests in a Partnership
-HEAD-
SUBPART C - TRANSFERS OF INTERESTS IN A PARTNERSHIP
-MISC1-
Sec.
741. Recognition and character of gain or loss on sale or
exchange.
742. Basis of transferee partner's interest.
743. Optional adjustment to basis of partnership property.
-End-
-CITE-
26 USC Sec. 741 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 C - Transfers of Interests in a Partnership
-HEAD-
Sec. 741. Recognition and character of gain or loss on sale or
exchange
-STATUTE-
In the case of a sale or exchange of an interest in a
partnership, gain or loss shall be recognized to the transferor
partner. Such gain or loss shall be considered as gain or loss from
the sale or exchange of a capital asset, except as otherwise
provided in section 751 (relating to unrealized receivables and
inventory items).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 248; Pub. L. 107-147, title IV,
Sec. 417(12), Mar. 9, 2002, 116 Stat. 56.)
-MISC1-
AMENDMENTS
2002 - Pub. L. 107-147 struck out "which have appreciated
substantially in value" after "inventory items".
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in section 751 of this title.
-End-
-CITE-
26 USC Sec. 742 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 C - Transfers of Interests in a Partnership
-HEAD-
Sec. 742. Basis of transferee partner's interest
-STATUTE-
The basis of an interest in a partnership acquired other than by
contribution shall be determined under part II of subchapter O
(sec. 1011 and following).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 249.)
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in section 705 of this title.
-End-
-CITE-
26 USC Sec. 743 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 C - Transfers of Interests in a Partnership
-HEAD-
Sec. 743. Optional adjustment to basis of partnership property
-STATUTE-
(a) General rule
The basis of partnership property shall not be adjusted as the
result of a transfer of an interest in a partnership by sale or
exchange or on the death of a partner unless the election provided
by section 754 (relating to optional adjustment to basis of
partnership property) is in effect with respect to such
partnership.
(b) Adjustment to basis of partnership property
In the case of a transfer of an interest in a partnership by sale
or exchange or upon the death of a partner, a partnership with
respect to which the election provided in section 754 is in effect
shall -
(1) increase the adjusted basis of the partnership property by
the excess of the basis to the transferee partner of his interest
in the partnership over his proportionate share of the adjusted
basis of the partnership property, or
(2) decrease the adjusted basis of the partnership property by
the excess of the transferee partner's proportionate share of the
adjusted basis of the partnership property over the basis of his
interest in the partnership.
Under regulations prescribed by the Secretary, such increase or
decrease shall constitute an adjustment to the basis of partnership
property with respect to the transferee partner only. A partner's
proportionate share of the adjusted basis of partnership property
shall be determined in accordance with his interest in partnership
capital and, in the case of property contributed to the partnership
by a partner, section 704(c) (relating to contributed property)
shall apply in determining such share. In the case of an adjustment
under this subsection to the basis of partnership property subject
to depletion, any depletion allowable shall be determined
separately for the transferee partner with respect to his interest
in such property.
(c) Allocation of basis
The allocation of basis among partnership properties where
subsection (b) is applicable shall be made in accordance with the
rules provided in section 755.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 249; Pub. L. 94-455, title XIX,
Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 98-369,
div. A, title I, Sec. 71(b), July 18, 1984, 98 Stat. 589.)
-MISC1-
AMENDMENTS
1984 - Subsec. (b). Pub. L. 98-369 substituted "property
contributed to the partnership by a partner, section 704(c)
(relating to contributed property) shall apply in determining such
share" for "an agreement described in section 704(c)(2) (relating
to effect of partnership agreement on contributed property), such
share shall be determined by taking such agreement into account" in
penultimate sentence.
1976 - Subsec. (b). Pub. L. 94-455 struck out "or his delegate"
after "Secretary".
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable with respect to property
contributed to the partnership after Mar. 31, 1984, in taxable
years ending after such date, see section 71(c) of Pub. L. 98-369,
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 197, 732, 754, 755, 761,
774 of this title.
-End-
-CITE-
26 USC Subpart D - Provisions Common to Other Subparts 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 D - Provisions Common to Other Subparts
-HEAD-
SUBPART D - PROVISIONS COMMON TO OTHER SUBPARTS
-MISC1-
Sec.
751. Unrealized receivables and inventory items.
752. Treatment of certain liabilities.
753. Partner receiving income in respect of decedent.
754. Manner of electing optional adjustment to basis of
partnership property.
755. Rules for allocation of basis.
-End-
-CITE-
26 USC Sec. 751 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 D - Provisions Common to Other Subparts
-HEAD-
Sec. 751. Unrealized receivables and inventory items
-STATUTE-
(a) Sale or exchange of interest in partnership
The amount of any money, or the fair market value of any
property, received by a transferor partner in exchange for all or a
part of his interest in the partnership attributable to -
(1) unrealized receivables of the partnership, or
(2) inventory items of the partnership,
shall be considered as an amount realized from the sale or exchange
of property other than a capital asset.
(b) Certain distributions treated as sales or exchanges
(1) General rule
To the extent a partner receives in a distribution -
(A) partnership property which is -
(i) unrealized receivables, or
(ii) inventory items which have appreciated substantially
in value,
in exchange for all or a part of his interest in other
partnership property (including money), or
(B) partnership property (including money) other than
property described in subparagraph (A)(i) or (ii) in exchange
for all or a part of his interest in partnership property
described in subparagraph (A)(i) or (ii),
such transactions shall, under regulations prescribed by the
Secretary, be considered as a sale or exchange of such property
between the distributee and the partnership (as constituted after
the distribution).
(2) Exceptions
Paragraph (1) shall not apply to -
(A) a distribution of property which the distributee
contributed to the partnership, or
(B) payments, described in section 736(a), to a retiring
partner or successor in interest of a deceased partner.
(3) Substantial appreciation
For purposes of paragraph (1) -
(A) In general
Inventory items of the partnership shall be considered to
have appreciated substantially in value if their fair market
value exceeds 120 percent of the adjusted basis to the
partnership of such property.
(B) Certain property excluded
For purposes of subparagraph (A), there shall be excluded any
inventory property if a principal purpose for acquiring such
property was to avoid the provisions of this subsection
relating to inventory items.
(c) Unrealized receivables
For purposes of this subchapter, the term "unrealized
receivables" includes, to the extent not previously includible in
income under the method of accounting used by the partnership, any
rights (contractual or otherwise) to payment for -
(1) goods delivered, or to be delivered, to the extent the
proceeds therefrom would be treated as amounts received from the
sale or exchange of property other than a capital asset, or
(2) services rendered, or to be rendered.
For purposes of this section and,(!1) sections 731, 732, and 741
(but not for purposes of section 736), such term also includes
mining property (as defined in section 617(f)(2)), stock in a DISC
(as described in section 992(a)), section 1245 property (as defined
in section 1245(a)(3)), stock in certain foreign corporations (as
described in section 1248), section 1250 property (as defined in
section 1250(c)), farm land (as defined in section 1252(a)),
franchises, trademarks, or trade names (referred to in section
1253(a)), and an oil, gas, or geothermal property (described in
section 1254) but only to the extent of the amount which would be
treated as gain to which section 617(d)(1), 995(c), 1245(a),
1248(a), 1250(a), 1252(a), 1253(a), or 1254(a) would apply if (at
the time of the transaction described in this section or section
731, 732, or 741, as the case may be) such property had been sold
by the partnership at its fair market value. For purposes of this
section and,(!1) sections 731, 732, and 741 (but not for purposes
of section 736), such term also includes any market discount bond
(as defined in section 1278) and any short-term obligation (as
defined in section 1283) but only to the extent of the amount which
would be treated as ordinary income if (at the time of the
transaction described in this section or section 731, 732, or 741,
as the case may be) such property had been sold by the partnership.
(d) Inventory items
For purposes of this subchapter, the term "inventory items" means
-
(1) property of the partnership of the kind described in
section 1221(a)(1),
(2) any other property of the partnership which, on sale or
exchange by the partnership, would be considered property other
than a capital asset and other than property described in section
1231,
(3) any other property of the partnership which, if sold or
exchanged by the partnership, would result in a gain taxable
under subsection (a) of section 1246 (relating to gain on foreign
investment company stock), and
(4) any other property held by the partnership which, if held
by the selling or distributee partner, would be considered
property of the type described in paragraph (1), (2), or (3).
(e) Limitation on tax attributable to deemed sales of section 1248
stock
For purposes of applying this section and sections 731 and 741 to
any amount resulting from the reference to section 1248(a) in the
second sentence of subsection (c), in the case of an individual,
the tax attributable to such amount shall be limited in the manner
provided by subsection (b) of section 1248 (relating to gain from
certain sales or exchanges of stock in certain foreign
corporation).
(f) Special rules in the case of tiered partnerships, etc.
In determining whether property of a partnership is -
(1) an unrealized receivable, or
(2) an inventory item,
such partnership shall be treated as owning its proportionate share
of the property of any other partnership in which it is a partner.
Under regulations, rules similar to the rules of the preceding
sentence shall also apply in the case of interests in trusts.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 250; Pub. L. 87-834, Secs.
13(f)(1), 14(b)(2), Oct. 16, 1962, 76 Stat. 1035, 1041; Pub. L.
88-272, title II, Sec. 231(b)(6), Feb. 26, 1964, 78 Stat. 105; Pub.
L. 89-570, Sec. 1(c), Sept. 12, 1966, 80 Stat. 762; Pub. L. 91-172,
title II, Sec. 211(b)(6), Dec. 30, 1969, 83 Stat. 570; Pub. L.
94-455, title II, Sec. 205(b), title X, Sec. 1042(c)(2), title XI,
Sec. 1101(d)(2), title XIX, Secs. 1901(a)(93), 1906(b)(13)(A),
title XXI, Sec. 2110(a), Oct. 4, 1976, 90 Stat. 1535, 1637, 1658,
1780, 1834, 1905; Pub. L. 95-600, title VII, Sec. 701(u)(13)(A),
Nov. 6, 1978, 92 Stat. 2918; Pub. L. 95-618, title IV, Sec.
402(c)(5), Nov. 9, 1978, 92 Stat. 3202; Pub. L. 97-448, title I,
Sec. 102(a)(6), Jan. 12, 1983, 96 Stat. 2368; Pub. L. 98-369, div.
A, title I, Secs. 43(c)(3), 76(a), title IV, Sec. 492(b)(4), July
18, 1984, 98 Stat. 558, 595, 854; Pub. L. 99-514, title II, Sec.
201(d)(10), title XVIII, Sec. 1899A(19), Oct. 22, 1986, 100 Stat.
2141, 2959; Pub. L. 103-66, title XIII, Secs. 13206(e)(1),
13262(b)(1), (2)(A), Aug. 10, 1993, 107 Stat. 467, 541; Pub. L.
105-34, title X, Sec. 1062(a)-(b)(2), Aug. 5, 1997, 111 Stat. 946,
947; Pub. L. 105-206, title VI, Sec. 6010(m), July 22, 1998, 112
Stat. 816; Pub. L. 106-170, title V, Sec. 532(c)(2)(F), Dec. 17,
1999, 113 Stat. 1930.)
-MISC1-
AMENDMENTS
1999 - Subsec. (d)(1). Pub. L. 106-170 substituted "section
1221(a)(1)" for "section 1221(1)".
1998 - Subsec. (c). Pub. L. 105-206 substituted "731, 732," for
"731" wherever appearing in concluding provisions.
1997 - Subsec. (a)(2). Pub. L. 105-34, Sec. 1062(a), amended par.
(2) generally. Prior to amendment, par. (2) read as follows:
"inventory items of the partnership which have appreciated
substantially in value,".
Subsec. (b)(1). Pub. L. 105-34, Sec. 1062(b)(1)(A), added
subpars. (A) and (B) and struck out former subpars. (A) and (B)
which read as follows:
"(A) partnership property described in subsection (a)(1) or (2)
in exchange for all or a part of his interest in other partnership
property (including money), or
"(B) partnership property (including money) other than property
described in subsection (a)(1) or (2) in exchange for all or a part
of his interest in partnership property described in subsection
(a)(1) or (2),".
Subsec. (b)(3). Pub. L. 105-34, Sec. 1062(b)(1)(B), added par.
(3).
Subsec. (d). Pub. L. 105-34, Sec. 1062(b)(2), amended heading and
text of subsec. (d) generally. Prior to amendment, subsec. (d)
consisted of pars. (1) and (2) relating to inventory items which
have appreciated substantially in value.
1993 - Subsec. (c). Pub. L. 103-66, Sec. 13262(b)(1), in
concluding provisions, substituted "section 731 or 741" for
"section 731, 736, or 741" in two places and ", sections 731 and
741 (but not for purposes of section 736)" for "sections 731, 736,
and 741" in two places.
Subsec. (d)(1). Pub. L. 103-66, Sec. 13206(e)(1), amended heading
and text of par. (1) generally. Prior to amendment, text read as
follows: "Inventory items of the partnership shall be considered to
have appreciated substantially in value if their fair market value
exceeds -
"(A) 120 percent of the adjusted basis to the partnership of
such property, and
"(B) 10 percent of the fair market value of all partnership
property, other than money."
Subsec. (e). Pub. L. 103-66, Sec. 13262(b)(2)(A), substituted
"sections 731 and 741" for "sections 731, 736, and 741".
1986 - Subsec. (c). Pub. L. 99-514, Sec. 1899A(19), substituted
"section 617(f)(2)), stock" for "section 617(f)(2), stock" in
second sentence.
Pub. L. 99-514, Sec. 201(d)(10), struck out "section 1245
recovery property (as defined in section 1245(a)(5))," before
"stock in certain foreign corporations" in second sentence.
1984 - Subsec. (c). Pub. L. 98-369, Sec. 492(b)(4), struck out
"farm recapture property (as defined in section 1251(e)(1)),"
before "farm land", and "1251(c)," after "1250(a)," in second
sentence.
Pub. L. 98-369, Sec. 43(c)(3), inserted last sentence.
Subsec. (f). Pub. L. 98-369, Sec. 76(a), added subsec. (f).
1983 - Subsec. (c). Pub. L. 97-448 inserted reference to section
1245 recovery property (as defined in section 1245(a)(5)) in second
sentence.
1978 - Subsec. (c). Pub. L. 95-618 substituted "oil, gas, or
geothermal property" for "oil or gas property" in second sentence.
Subsec. (e). Pub. L. 95-600 added subsec. (e).
1976 - Subsec. (b)(1). Pub. L. 94-455, Sec. 1906(b)(13)(A),
struck out "or his delegate" after "Secretary".
Subsec. (c). Pub. L. 94-455, Secs. 205(b), 1042(c)(2),
1101(d)(2), 1901(a)(93), 2110(a), in second sentence, inserted
reference to stock in a DISC (as described in section 992(a)),
reference to stock in certain foreign corporations (as described in
section 1248), and reference to farm land (as defined in section
1252(a)), franchises, trademarks or trade names (referred to in
section 1253(a)), and an oil or gas property (described in section
1254), substituted "1252(a), 1253(a), or 1254(a)" for "or 1252(a)",
and inserted "1248(a)," after "1245(a)," and "995(c)," after
"617(d)(1),".
1969 - Subsec. (c). Pub. L. 91-172, in second sentence,
substituted "section 1250 property (as defined in section 1250(c)),
farm recapture property (as defined in section 1251(e)(1)), and
farm land (as defined in section 1252(a))", and "1250(a), 1251(c),
or 1252(a)", for "and section 1250 property (as defined in section
1250(c))" and "1250(a)", respectively.
1966 - Subsec. (c). Pub. L. 89-570, in second sentence, inserted
reference to mining property (as defined in section 617(f)(2)) and
to section 617(d)(1).
1964 - Subsec. (c). Pub. L. 88-272, in second sentence, inserted
reference to section 1250.
1962 - Subsec. (c). Pub. L. 87-834, Sec. 13(f)(1), defined
"unrealized receivables" for purposes of this section and section
731, 736, and 741, as including section 1245 property, but only to
the extent of the amount which would be treated as gain to which
section 1245(a) would apply if (at the time of the transaction
described in this section or section 731, 736, or 741, as the case
may be) such property had been sold by the partnership at its fair
market value.
Subsec. (d)(2). Pub. L. 87-834, Sec. 14(b)(2), added subpar. (C),
redesignated former subpar. (C) as (D), and substituted
"subparagraph (A), (B), or (C)" for "subparagraph (A) or (B)".
EFFECTIVE DATE OF 1999 AMENDMENT
Amendment by Pub. L. 106-170 applicable to any instrument held,
acquired, or entered into, any transaction entered into, and
supplies held or acquired on or after Dec. 17, 1999, see section
532(d) of Pub. L. 106-170, set out as a note under section 170 of
this title.
EFFECTIVE DATE OF 1998 AMENDMENT
Amendment by Pub. L. 105-206 effective, except as otherwise
provided, as if included in the provisions of the Taxpayer Relief
Act of 1997, Pub. L. 105-34, to which such amendment relates, see
section 6024 of Pub. L. 105-206, set out as a note under section 1
of this title.
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 1993 AMENDMENT
Section 13206(e)(2) of Pub. L. 103-66 provided that: "The
amendment made by paragraph (1) [amending this section] shall apply
to sales, exchanges, and distributions after April 30, 1993."
Amendment by section 13262(b)(1) and (2)(A) of Pub. L. 103-66
applicable in the case of partners retiring or dying on or after
Jan. 5, 1993, with a binding contract exception, see section
13262(c) of Pub. L. 103-66, set out as a note under section 736 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 201(d)(10) of Pub. L. 99-514 applicable to
property placed in service after Dec. 31, 1986, in taxable years
ending after such date, with exceptions, see sections 203 and 204
of Pub. L. 99-514, set out as a note under section 168 of this
title.
Amendment by section 201(d)(10) of Pub. L. 99-514 not applicable
to any property placed in service before Jan. 1, 1994, if such
property placed in service as part of specified rehabilitations,
and not applicable to certain additional rehabilitations, see
section 251(d)(2), (3) of Pub. L. 99-514, set out as a note under
section 46 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 43(c)(3) of Pub. L. 98-369 applicable to
taxable years ending after July 18, 1984, see section 44 of Pub. L.
98-369, set out as an Effective Date note under section 1271 of
this title.
Section 76(b) of Pub. L. 98-369 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
distributions, sales, and exchanges made after March 31, 1984, in
taxable years ending after such date."
Amendment by section 492(b)(4) of Pub. L. 98-369 applicable to
taxable years beginning after Dec. 31, 1983, see section 492(d) of
Pub. L. 98-369, set out as a note under section 170 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 1978 AMENDMENTS
Amendment by Pub. L. 95-618 applicable with respect to wells
commenced on or after Oct. 1, 1978, in taxable years ending on or
after such date, see section 402(e) of Pub. L. 95-618, set out as a
note under section 263 of this title.
Section 701(u)(13)(C) of Pub. L. 95-600 provided that: "The
amendments made by this paragraph [amending this section and
section 736 of this title] shall apply to transfers beginning after
October 9, 1975, and to sales, exchanges, and distributions taking
place after such date."
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 205(b) of Pub. L. 94-455 effective for
taxable years ending after Dec. 31, 1975, see section 205(e) of
Pub. L. 94-455, set out as an Effective Date note under section
1254 of this title.
Amendment by section 1042(c)(2) of Pub. L. 94-455 applicable to
transfers beginning after Oct. 9, 1975, and to sales, exchanges and
distributions taking place after that date, see section 1042(e)(1)
of Pub. L. 94-455, set out as a note under section 367 of this
title.
Amendment by section 1101(d)(2) of Pub. L. 94-455 applicable to
sales, exchanges, or other dispositions after Dec. 31, 1975, in
taxable years ending after such date, see section 1101(g)(4) of
Pub. L. 94-455, set out as a note under section 995 of this title.
Amendment by section 1901(a)(93) 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.
Section 2110(b) of Pub. L. 94-455, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "Subsection
(a) [amending this section] shall apply to transactions described
in sections 731, 736, 741, or 751 of the Internal Revenue Code of
1986 [formerly I.R.C. 1954] which occur after December 31, 1976, in
taxable years ending after that date."
EFFECTIVE DATE OF 1969 AMENDMENT
Amendment by Pub. L. 91-172 applicable to taxable years beginning
after Dec. 31, 1969, see section 211(c) of Pub. L. 91-172, set out
as a note under section 301 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.
EFFECTIVE DATE OF 1964 AMENDMENT
Amendment by Pub. L. 88-272 applicable to dispositions after Dec.
31, 1963, in taxable years ending after such date, see section
231(c) of Pub. L. 88-272, set out as an Effective Date note under
section 1250 of this title.
EFFECTIVE DATE OF 1962 AMENDMENT
Amendment by section 13(f)(1) of Pub. L. 87-834 applicable to
taxable years beginning after Dec. 31, 1962, see section 13(g) of
Pub. L. 87-834, set out as an Effective Date note under section
1245 of this title.
Amendment by section 14(b)(2) of Pub. L. 87-834 applicable with
respect to taxable years beginning after Dec. 31, 1962, see section
14(c) of Pub. L. 87-834, set out as an Effective Date note under
section 1246 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 1, 170, 453, 467, 617,
724, 731, 732, 735, 736, 737, 741, 1245, 1250, 1255, 1257, 6050K of
this title.
-FOOTNOTE-
(!1) So in original. The comma probably should not appear.
-End-
-CITE-
26 USC Sec. 752 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 D - Provisions Common to Other Subparts
-HEAD-
Sec. 752. Treatment of certain liabilities
-STATUTE-
(a) Increase in partner's liabilities
Any increase in a partner's share of the liabilities of a
partnership, or any increase in a partner's individual liabilities
by reason of the assumption by such partner of partnership
liabilities, shall be considered as a contribution of money by such
partner to the partnership.
(b) Decrease in partner's liabilities
Any decrease in a partner's share of the liabilities of a
partnership, or any decrease in a partner's individual liabilities
by reason of the assumption by the partnership of such individual
liabilities, shall be considered as a distribution of money to the
partner by the partnership.
(c) Liability to which property is subject
For purposes of this section, a liability to which property is
subject shall, to the extent of the fair market value of such
property, be considered as a liability of the owner of the
property.
(d) Sale or exchange of an interest
In the case of a sale or exchange of an interest in a
partnership, liabilities shall be treated in the same manner as
liabilities in connection with the sale or exchange of property not
associated with partnerships.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 251.)
-MISC1-
OVERRULING OF RAPHAN CASE
Pub. L. 98-369, div. A, title I, Sec. 79, July 18, 1984, 98 Stat.
597, as amended by Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat.
2095, provided that:
"(a) General Rule. - Section 752 of the Internal Revenue Code of
1986 [formerly I.R.C. 1954] (and the regulations prescribed
thereunder) shall be applied without regard to the result reached
in the case of Raphan vs the United States, 3 Cl. Ct. 457 (1983).
"(b) Regulations. - In amending the regulations prescribed under
section 752 of such Code to reflect subsection (a), the Secretary
of the Treasury or his delegate shall prescribe regulations
relating to liabilities, including the treatment of guarantees,
assumptions, indemnity agreements, and similar arrangements."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in section 465 of this title.
-End-
-CITE-
26 USC Sec. 753 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 D - Provisions Common to Other Subparts
-HEAD-
Sec. 753. Partner receiving income in respect of decedent
-STATUTE-
The amount includible in the gross income of a successor in
interest of a deceased partner under section 736(a) shall be
considered income in respect of a decedent under section 691.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 251.)
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in section 691 of this title.
-End-
-CITE-
26 USC Sec. 754 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 D - Provisions Common to Other Subparts
-HEAD-
Sec. 754. Manner of electing optional adjustment to basis of
partnership property
-STATUTE-
If a partnership files an election, in accordance with
regulations prescribed by the Secretary, the basis of partnership
property shall be adjusted, in the case of a distribution of
property, in the manner provided in section 734 and, in the case of
a transfer of a partnership interest, in the manner provided in
section 743. Such an election shall apply with respect to all
distributions of property by the partnership and to all transfers
of interests in the partnership during the taxable year with
respect to which such election was filed and all subsequent taxable
years. Such election may be revoked by the partnership, subject to
such limitations as may be provided by regulations prescribed by
the Secretary.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 251; Pub. L. 94-455, title XIX,
Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834.)
-MISC1-
AMENDMENTS
1976 - Pub. L. 94-455 struck out "or his delegate" after
"Secretary" wherever appearing.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 732, 734, 743 of this
title.
-End-
-CITE-
26 USC Sec. 755 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 D - Provisions Common to Other Subparts
-HEAD-
Sec. 755. Rules for allocation of basis
-STATUTE-
(a) General rule
Any increase or decrease in the adjusted basis of partnership
property under section 734(b) (relating to the optional adjustment
to the basis of undistributed partnership property) or section
743(b) (relating to the optional adjustment to the basis of
partnership property in the case of a transfer of an interest in a
partnership) shall, except as provided in subsection (b), be
allocated -
(1) in a manner which has the effect of reducing the difference
between the fair market value and the adjusted basis of
partnership properties, or
(2) in any other manner permitted by regulations prescribed by
the Secretary.
(b) Special rule
In applying the allocation rules provided in subsection (a),
increases or decreases in the adjusted basis of partnership
property arising from a distribution of, or a transfer of an
interest attributable to, property consisting of -
(1) capital assets and property described in section 1231(b),
or
(2) any other property of the partnership,
shall be allocated to partnership property of a like character
except that the basis of any such partnership property shall not be
reduced below zero. If, in the case of a distribution, the
adjustment to basis of property described in paragraph (1) or (2)
is prevented by the absence of such property or by insufficient
adjusted basis for such property, such adjustment shall be applied
to subsequently acquired property of a like character in accordance
with regulations prescribed by the Secretary.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 252; Pub. L. 94-455, title XIX,
Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834.)
-MISC1-
AMENDMENTS
1976 - Subsecs. (a), (b). Pub. L. 94-455 struck out "or his
delegate" after "Secretary" wherever appearing.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 706, 734, 743, 1060 of
this title.
-End-
-CITE-
26 USC PART III - DEFINITIONS 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 III - DEFINITIONS
-HEAD-
PART III - DEFINITIONS
-MISC1-
Sec.
761. Terms defined.
-End-
-CITE-
26 USC Sec. 761 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 III - DEFINITIONS
-HEAD-
Sec. 761. Terms defined
-STATUTE-
(a) Partnership
For purposes of this subtitle, the term "partnership" includes a
syndicate, group, pool, joint venture, or other unincorporated
organization through or by means of which any business, financial
operation, or venture is carried on, and which is not, within the
meaning of this title, a corporation or a trust or estate. Under
regulations the Secretary may, at the election of all the members
of an unincorporated organization, exclude such organization from
the application of all or part of this subchapter, if it is availed
of -
(1) for investment purposes only and not for the active conduct
of a business,
(2) for the joint production, extraction, or use of property,
but not for the purpose of selling services or property produced
or extracted, or
(3) by dealers in securities for a short period for the purpose
of underwriting, selling, or distributing a particular issue of
securities,
if the income of the members of the organization may be adequately
determined without the computation of partnership taxable income.
(b) Partner
For purposes of this subtitle, the term "partner" means a member
of a partnership.
(c) Partnership agreement
For purposes of this subchapter, a partnership agreement includes
any modifications of the partnership agreement made prior to, or
at, the time prescribed by law for the filing of the partnership
return for the taxable year (not including extensions) which are
agreed to by all the partners, or which are adopted in such other
manner as may be provided by the partnership agreement.
(d) Liquidation of a partner's interest
For purposes of this subchapter, the term "liquidation of a
partner's interest" means the termination of a partner's entire
interest in a partnership by means of a distribution, or a series
of distributions, to the partner by the partnership.
(e) Distributions of partnership interests treated as exchanges
Except as otherwise provided in regulations, for purposes of -
(1) section 708 (relating to continuation of partnership),
(2) section 743 (relating to optional adjustment to basis of
partnership property), and
(3) any other provision of this subchapter specified in
regulations prescribed by the Secretary,
any distribution of an interest in a partnership (not otherwise
treated as an exchange) shall be treated as an exchange.
(f) Cross reference
For rules in the case of the sale, exchange, liquidation, or
reduction of a partner's interest, see sections 704(b) and
706(c)(2).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 252; Pub. L. 94-455, title II,
Sec. 213(c)(3)(B), title XIX, Sec. 1906(b)(13)(A), Oct. 4, 1976, 90
Stat. 1548, 1834; Pub. L. 96-222, title I, Sec. 102(a)(2)(C), Apr.
1, 1980, 94 Stat. 208; Pub. L. 98-369, div. A, title I, Sec. 75(b),
July 18, 1984, 98 Stat. 594; Pub. L. 99-514, title XVIII, Sec.
1805(c)(2), Oct. 22, 1986, 100 Stat. 2810.)
-MISC1-
AMENDMENTS
1986 - Subsec. (e). Pub. L. 99-514 substituted "Distributions of
partnership interests" for "Distributions" in heading, substituted
"Except as otherwise provided in regulations, for purposes of" for
"For purposes of" in introductory provision, and "any distribution
of an interest in a partnership" for "any distribution" in closing
provisions.
1984 - Subsecs. (e), (f). Pub. L. 98-369 added subsec. (e) and
redesignated former subsec. (e) as (f).
1980 - Subsec. (a)(3). Pub. L. 96-222 added par. (3).
1976 - Subsec. (a). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck
out "or his delegate" after "Secretary".
Subsec. (e). Pub. L. 94-455, Sec. 213(c)(3)(B), added subsec.
(e).
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by 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
Amendment by Pub. L. 98-369 applicable to distributions, sales,
and exchanges made after Mar. 31, 1984, in taxable years ending
after such date, see section 75(e) of Pub. L. 98-369, set out as an
Effective Date note under section 386 of this title.
EFFECTIVE DATE OF 1980 AMENDMENT
Amendment by Pub. L. 96-222 effective, except as otherwise
provided, as if it had been included in the provisions of the
Revenue Act of 1978, Pub. L. 95-600, to which such amendment
relates, see section 201 of Pub. L. 96-222, set out as a note under
section 32 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 213(c)(3)(B) 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 a note
under section 709 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 section 1031 of this title.
-End-
-CITE-
26 USC PART IV - SPECIAL RULES FOR ELECTING LARGE
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
PART IV - SPECIAL RULES FOR ELECTING LARGE PARTNERSHIPS
-HEAD-
PART IV - SPECIAL RULES FOR ELECTING LARGE PARTNERSHIPS
-MISC1-
Sec.
771. Application of subchapter to electing large
partnerships.
772. Simplified flow-through.
773. Computations at partnership level.
774. Other modifications.
775. Electing large partnership defined.
776. Special rules for partnerships holding oil and gas
properties.
777. Regulations.
PRIOR PROVISIONS
A prior part IV, relating to effective date for subchapter,
consisted of section 771 of this title, prior to repeal by Pub. L.
94-455, title XIX, Sec. 1901(a)(94), Oct. 4, 1976, 90 Stat. 1780.
AMENDMENTS
1997 - Pub. L. 105-34, title XII, Sec. 1221(a), Aug. 5, 1997, 111
Stat. 1001, added part heading and section analysis.
-End-
-CITE-
26 USC Sec. 771 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 IV - SPECIAL RULES FOR ELECTING LARGE PARTNERSHIPS
-HEAD-
Sec. 771. Application of subchapter to electing large partnerships
-STATUTE-
The preceding provisions of this subchapter to the extent
inconsistent with the provisions of this part shall not apply to an
electing large partnership and its partners.
-SOURCE-
(Added Pub. L. 105-34, title XII, Sec. 1221(a), Aug. 5, 1997, 111
Stat. 1002.)
-MISC1-
PRIOR PROVISIONS
A prior section 771, act Aug. 16, 1954, ch. 736, 68A Stat. 253,
related to the effective date for this subchapter, prior to repeal
by Pub. L. 94-455, title XIX, Sec. 1901(a)(94), Oct. 4, 1976, 90
Stat. 1780.
EFFECTIVE DATE
Section 1221(c) of Pub. L. 105-34 provided that: "The amendments
made by this section [enacting this part] shall apply to
partnership taxable years beginning after December 31, 1997."
This part applicable to partnership taxable years beginning after
Dec. 31, 1997, see section 1226 of Pub. L. 105-34, as amended, set
out as an Effective Date of 1997 Amendment note under section 6011
of this title.
-End-
-CITE-
26 USC Sec. 772 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 IV - SPECIAL RULES FOR ELECTING LARGE PARTNERSHIPS
-HEAD-
Sec. 772. Simplified flow-through
-STATUTE-
(a) General rule
In determining the income tax of a partner of an electing large
partnership, such partner shall take into account separately such
partner's distributive share of the partnership's -
(1) taxable income or loss from passive loss limitation
activities,
(2) taxable income or loss from other activities,
(3) net capital gain (or net capital loss) -
(A) to the extent allocable to passive loss limitation
activities, and
(B) to the extent allocable to other activities,
(4) tax-exempt interest,
(5) applicable net AMT adjustment separately computed for -
(A) passive loss limitation activities, and
(B) other activities,
(6) general credits,
(7) low-income housing credit determined under section 42,
(8) rehabilitation credit determined under section 47,
(9) foreign income taxes,
(10) the credit allowable under section 29, and
(11) other items to the extent that the Secretary determines
that the separate treatment of such items is appropriate.
(b) Separate computations
In determining the amounts required under subsection (a) to be
separately taken into account by any partner, this section and
section 773 shall be applied separately with respect to such
partner by taking into account such partner's distributive share of
the items of income, gain, loss, deduction, or credit of the
partnership.
(c) Treatment at partner level
(1) In general
Except as provided in this subsection, rules similar to the
rules of section 702(b) shall apply to any partner's distributive
share of the amounts referred to in subsection (a).
(2) Income or loss from passive loss limitation activities
For purposes of this chapter, any partner's distributive share
of any income or loss described in subsection (a)(1) shall be
treated as an item of income or loss (as the case may be) from
the conduct of a trade or business which is a single passive
activity (as defined in section 469). A similar rule shall apply
to a partner's distributive share of amounts referred to in
paragraphs (3)(A) and (5)(A) of subsection (a).
(3) Income or loss from other activities
(A) In general
For purposes of this chapter, any partner's distributive
share of any income or loss described in subsection (a)(2)
shall be treated as an item of income or expense (as the case
may be) with respect to property held for investment.
(B) Deductions for loss not subject to section 67
The deduction under section 212 for any loss described in
subparagraph (A) shall not be treated as a miscellaneous
itemized deduction for purposes of section 67.
(4) Treatment of net capital gain or loss
For purposes of this chapter, any partner's distributive share
of any gain or loss described in subsection (a)(3) shall be
treated as a long-term capital gain or loss, as the case may be.
(5) Minimum tax treatment
In determining the alternative minimum taxable income of any
partner, such partner's distributive share of any applicable net
AMT adjustment shall be taken into account in lieu of making the
separate adjustments provided in sections 56, 57, and 58 with
respect to the items of the partnership. Except as provided in
regulations, the applicable net AMT adjustment shall be treated,
for purposes of section 53, as an adjustment or item of tax
preference not specified in section 53(d)(1)(B)(ii).
(6) General credits
A partner's distributive share of the amount referred to in
paragraph (6) of subsection (a) shall be taken into account as a
current year business credit.
(d) Operating rules
For purposes of this section -
(1) Passive loss limitation activity
The term "passive loss limitation activity" means -
(A) any activity which involves the conduct of a trade or
business, and
(B) any rental activity.
For purposes of the preceding sentence, the term "trade or
business" includes any activity treated as a trade or business
under paragraph (5) or (6) of section 469(c).
(2) Tax-exempt interest
The term "tax-exempt interest" means interest excludable from
gross income under section 103.
(3) Applicable net AMT adjustment
(A) In general
The applicable net AMT adjustment is -
(i) with respect to taxpayers other than corporations, the
net adjustment determined by using the adjustments applicable
to individuals, and
(ii) with respect to corporations, the net adjustment
determined by using the adjustments applicable to
corporations.
(B) Net adjustment
The term "net adjustment" means the net adjustment in the
items attributable to passive loss activities or other
activities (as the case may be) which would result if such
items were determined with the adjustments of sections 56, 57,
and 58.
(4) Treatment of certain separately stated items
(A) Exclusion for certain purposes
In determining the amounts referred to in paragraphs (1) and
(2) of subsection (a), any net capital gain or net capital loss
(as the case may be), and any item referred to in subsection
(a)(11), shall be excluded.
(B) Allocation rules
The net capital gain shall be treated -
(i) as allocable to passive loss limitation activities to
the extent the net capital gain does not exceed the net
capital gain determined by only taking into account gains and
losses from sales and exchanges of property used in
connection with such activities, and
(ii) as allocable to other activities to the extent such
gain exceeds the amount allocated under clause (i).
A similar rule shall apply for purposes of allocating any net
capital loss.
(C) Net capital loss
The term "net capital loss" means the excess of the losses
from sales or exchanges of capital assets over the gains from
sales or exchange of capital assets.
(5) General credits
The term "general credits" means any credit other than the
low-income housing credit, the rehabilitation credit, the foreign
tax credit, and the credit allowable under section 29.
(6) Foreign income taxes
The term "foreign income taxes" means taxes described in
section 901 which are paid or accrued to foreign countries and to
possessions of the United States.
(e) Special rule for unrelated business tax
In the case of a partner which is an organization subject to tax
under section 511, such partner's distributive share of any items
shall be taken into account separately to the extent necessary to
comply with the provisions of section 512(c)(1).
(f) Special rules for applying passive loss limitations
If any person holds an interest in an electing large partnership
other than as a limited partner -
(1) paragraph (2) of subsection (c) shall not apply to such
partner, and
(2) such partner's distributive share of the partnership items
allocable to passive loss limitation activities shall be taken
into account separately to the extent necessary to comply with
the provisions of section 469.
The preceding sentence shall not apply to any items allocable to an
interest held as a limited partner.
-SOURCE-
(Added Pub. L. 105-34, title XII, Sec. 1221(a), Aug. 5, 1997, 111
Stat. 1002.)
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 773, 774, 776 of this
title.
-End-
-CITE-
26 USC Sec. 773 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 IV - SPECIAL RULES FOR ELECTING LARGE PARTNERSHIPS
-HEAD-
Sec. 773. Computations at partnership level
-STATUTE-
(a) General rule
(1) Taxable income
The taxable income of an electing large partnership shall be
computed in the same manner as in the case of an individual
except that -
(A) the items described in section 772(a) shall be separately
stated, and
(B) the modifications of subsection (b) shall apply.
(2) Elections
All elections affecting the computation of the taxable income
of an electing large partnership or the computation of any credit
of an electing large partnership shall be made by the
partnership; except that the election under section 901, and any
election under section 108, shall be made by each partner
separately.
(3) Limitations, etc.
(A) In general
Except as provided in subparagraph (B), all limitations and
other provisions affecting the computation of the taxable
income of an electing large partnership or the computation of
any credit of an electing large partnership shall be applied at
the partnership level (and not at the partner level).
(B) Certain limitations applied at partner level
The following provisions shall be applied at the partner
level (and not at the partnership level):
(i) Section 68 (relating to overall limitation on itemized
deductions).
(ii) Sections 49 and 465 (relating to at risk limitations).
(iii) Section 469 (relating to limitation on passive
activity losses and credits).
(iv) Any other provision specified in regulations.
(4) Coordination with other provisions
Paragraphs (2) and (3) shall apply notwithstanding any other
provision of this chapter other than this part.
(b) Modifications to determination of taxable income
In determining the taxable income of an electing large
partnership -
(1) Certain deductions not allowed
The following deductions shall not be allowed:
(A) The deduction for personal exemptions provided in section
151.
(B) The net operating loss deduction provided in section 172.
(C) The additional itemized deductions for individuals
provided in part VII of subchapter B (other than section 212
thereof).
(2) Charitable deductions
In determining the amount allowable under section 170, the
limitation of section 170(b)(2) shall apply.
(3) Coordination with section 67
In lieu of applying section 67, 70 percent of the amount of the
miscellaneous itemized deductions shall be disallowed.
(c) Special rules for income from discharge of indebtedness
If an electing large partnership has income from the discharge of
any indebtedness -
(1) such income shall be excluded in determining the amounts
referred to in section 772(a), and
(2) in determining the income tax of any partner of such
partnership -
(A) such income shall be treated as an item required to be
separately taken into account under section 772(a), and
(B) the provisions of section 108 shall be applied without
regard to this part.
-SOURCE-
(Added Pub. L. 105-34, title XII, Sec. 1221(a), Aug. 5, 1997, 111
Stat. 1004.)
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 772, 774, 776 of this
title.
-End-
-CITE-
26 USC Sec. 774 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 IV - SPECIAL RULES FOR ELECTING LARGE PARTNERSHIPS
-HEAD-
Sec. 774. Other modifications
-STATUTE-
(a) Treatment of certain optional adjustments, etc.
In the case of an electing large partnership -
(1) computations under section 773 shall be made without regard
to any adjustment under section 743(b) or 108(b), but
(2) a partner's distributive share of any amount referred to in
section 772(a) shall be appropriately adjusted to take into
account any adjustment under section 743(b) or 108(b) with
respect to such partner.
(b) Credit recapture determined at partnership level
(1) In general
In the case of an electing large partnership -
(A) any credit recapture shall be taken into account by the
partnership, and
(B) the amount of such recapture shall be determined as if
the credit with respect to which the recapture is made had been
fully utilized to reduce tax.
(2) Method of taking recapture into account
An electing large partnership shall take into account a credit
recapture by reducing the amount of the appropriate current year
credit to the extent thereof, and if such recapture exceeds the
amount of such current year credit, the partnership shall be
liable to pay such excess.
(3) Dispositions not to trigger recapture
No credit recapture shall be required by reason of any transfer
of an interest in an electing large partnership.
(4) Credit recapture
For purposes of this subsection, the term "credit recapture"
means any increase in tax under section 42(j) or 50(a).
(c) Partnership not terminated by reason of change in ownership
Subparagraph (B) of section 708(b)(1) shall not apply to an
electing large partnership.
(d) Partnership entitled to certain credits
The following shall be allowed to an electing large partnership
and shall not be taken into account by the partners of such
partnership:
(1) The credit provided by section 34.
(2) Any credit or refund under section 852(b)(3)(D) or
857(b)(3)(D).
(e) Treatment of REMIC residuals
For purposes of applying section 860E(e)(6) to any electing large
partnership -
(1) all interests in such partnership shall be treated as held
by disqualified organizations,
(2) in lieu of applying subparagraph (C) of section 860E(e)(6),
the amount subject to tax under section 860E(e)(6) shall be
excluded from the gross income of such partnership, and
(3) subparagraph (D) of section 860E(e)(6) shall not apply.
(f) Special rules for applying certain installment sale rules
In the case of an electing large partnership -
(1) the provisions of sections 453(l)(3) and 453A shall be
applied at the partnership level, and
(2) in determining the amount of interest payable under such
sections, such partnership shall be treated as subject to tax
under this chapter at the highest rate of tax in effect under
section 1 or 11.
-SOURCE-
(Added Pub. L. 105-34, title XII, Sec. 1221(a), Aug. 5, 1997, 111
Stat. 1005; amended Pub. L. 105-206, title VI, Sec. 6012(c), July
22, 1998, 112 Stat. 819.)
-MISC1-
AMENDMENTS
1998 - Subsec. (d)(2). Pub. L. 105-206 inserted "or 857(b)(3)(D)"
before period at end.
EFFECTIVE DATE OF 1998 AMENDMENT
Amendment by Pub. L. 105-206 effective, except as otherwise
provided, as if included in the provisions of the Taxpayer Relief
Act of 1997, Pub. L. 105-34, to which such amendment relates, see
section 6024 of Pub. L. 105-206, set out as a note under section 1
of this title.
-End-
-CITE-
26 USC Sec. 775 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 IV - SPECIAL RULES FOR ELECTING LARGE PARTNERSHIPS
-HEAD-
Sec. 775. Electing large partnership defined
-STATUTE-
(a) General rule
For purposes of this part -
(1) In general
The term "electing large partnership" means, with respect to
any partnership taxable year, any partnership if -
(A) the number of persons who were partners in such
partnership in the preceding partnership taxable year equaled
or exceeded 100, and
(B) such partnership elects the application of this part.
To the extent provided in regulations, a partnership shall cease
to be treated as an electing large partnership for any
partnership taxable year if in such taxable year fewer than 100
persons were partners in such partnership.
(2) Election
The election under this subsection shall apply to the taxable
year for which made and all subsequent taxable years unless
revoked with the consent of the Secretary.
(b) Special rules for certain service partnerships
(1) Certain partners not counted
For purposes of this section, the term "partner" does not
include any individual performing substantial services in
connection with the activities of the partnership and holding an
interest in such partnership, or an individual who formerly
performed substantial services in connection with such activities
and who held an interest in such partnership at the time the
individual performed such services.
(2) Exclusion
For purposes of this part, an election under subsection (a)
shall not be effective with respect to any partnership if
substantially all the partners of such partnership -
(A) are individuals performing substantial services in
connection with the activities of such partnership or are
personal service corporations (as defined in section 269A(b))
the owner-employees (as defined in section 269A(b)) of which
perform such substantial services,
(B) are retired partners who had performed such substantial
services, or
(C) are spouses of partners who are performing (or had
previously performed) such substantial services.
(3) Special rule for lower tier partnerships
For purposes of this subsection, the activities of a
partnership shall include the activities of any other partnership
in which the partnership owns directly an interest in the capital
and profits of at least 80 percent.
(c) Exclusion of commodity pools
For purposes of this part, an election under subsection (a) shall
not be effective with respect to any partnership the principal
activity of which is the buying and selling of commodities (not
described in section 1221(a)(1)), or options, futures, or forwards
with respect to such commodities.
(d) Secretary may rely on treatment on return
If, on the partnership return of any partnership, such
partnership is treated as an electing large partnership, such
treatment shall be binding on such partnership and all partners of
such partnership but not on the Secretary.
-SOURCE-
(Added Pub. L. 105-34, title XII, Sec. 1221(a), Aug. 5, 1997, 111
Stat. 1006; amended Pub. L. 106-170, title V, Sec. 532(c)(2)(G),
Dec. 17, 1999, 113 Stat. 1930.)
-MISC1-
AMENDMENTS
1999 - Subsec. (c). Pub. L. 106-170 substituted "section
1221(a)(1)" for "section 1221(1)".
EFFECTIVE DATE OF 1999 AMENDMENT
Amendment by Pub. L. 106-170 applicable to any instrument held,
acquired, or entered into, any transaction entered into, and
supplies held or acquired on or after Dec. 17, 1999, see section
532(d) of Pub. L. 106-170, set out as a note under section 170 of
this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 6031, 6255 of this title.
-End-
-CITE-
26 USC Sec. 776 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 IV - SPECIAL RULES FOR ELECTING LARGE PARTNERSHIPS
-HEAD-
Sec. 776. Special rules for partnerships holding oil and gas
properties
-STATUTE-
(a) Computation of percentage depletion
In the case of an electing large partnership, except as provided
in subsection (b) -
(1) the allowance for depletion under section 611 with respect
to any partnership oil or gas property shall be computed at the
partnership level without regard to any provision of section 613A
requiring such allowance to be computed separately by each
partner,
(2) such allowance shall be determined without regard to the
provisions of section 613A(c) limiting the amount of production
for which percentage depletion is allowable and without regard to
paragraph (1) of section 613A(d), and
(3) paragraph (3) of section 705(a) shall not apply.
(b) Treatment of certain partners
(1) In general
In the case of a disqualified person, the treatment under this
chapter of such person's distributive share of any item of
income, gain, loss, deduction, or credit attributable to any
partnership oil or gas property shall be determined without
regard to this part. Such person's distributive share of any such
items shall be excluded for purposes of making determinations
under sections 772 and 773.
(2) Disqualified person
For purposes of paragraph (1), the term "disqualified person"
means, with respect to any partnership taxable year -
(A) any person referred to in paragraph (2) or (4) of section
613A(d) for such person's taxable year in which such
partnership taxable year ends, and
(B) any other person if such person's average daily
production of domestic crude oil and natural gas for such
person's taxable year in which such partnership taxable year
ends exceeds 500 barrels.
(3) Average daily production
For purposes of paragraph (2), a person's average daily
production of domestic crude oil and natural gas for any taxable
year shall be computed as provided in section 613A(c)(2) -
(A) by taking into account all production of domestic crude
oil and natural gas (including such person's proportionate
share of any production of a partnership),
(B) by treating 6,000 cubic feet of natural gas as a barrel
of crude oil, and
(C) by treating as 1 person all persons treated as 1 taxpayer
under section 613A(c)(8) or among whom allocations are required
under such section.
-SOURCE-
(Added Pub. L. 105-34, title XII, Sec. 1221(a), Aug. 5, 1997, 111
Stat. 1007.)
-End-
-CITE-
26 USC Sec. 777 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 IV - SPECIAL RULES FOR ELECTING LARGE PARTNERSHIPS
-HEAD-
Sec. 777. Regulations
-STATUTE-
The Secretary shall prescribe such regulations as may be
appropriate to carry out the purposes of this part.
-SOURCE-
(Added Pub. L. 105-34, title XII, Sec. 1221(a), Aug. 5, 1997, 111
Stat. 1008.)
-End-
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