Subchapter K—Partners and Partnerships
Subchapter Referred to in Other Sections
This subchapter is referred to in
PART I—DETERMINATION OF TAX LIABILITY
Amendments
1976—
§701. Partners, not partnership, subject to tax
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.
(Aug. 16, 1954, ch. 736,
Cross References
Definitions of partnership, see
Partnerships electing to be taxed as corporations, see
§702. Income and credits of partner
(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 there is a deduction under part VIII of subchapter B,
(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
(Aug. 16, 1954, ch. 736,
Amendments
1986—Subsec. (a)(5).
1984—Subsec. (a)(1), (2).
1983—Subsec. (a)(5).
1982—Subsec. (d).
1981—Subsec. (a)(5).
1980—Subsec. (a)(5).
1976—Subsec. (a)(1), (2).
Subsec. (a)(7) to (9).
Subsec. (b).
1964—Subsec. (a)(5).
Effective Date of 1986 Amendment
Amendment by
Effective Date of 1984 Amendment
Amendment by
Effective Date of 1983 Amendment
Amendment by
Effective Date of 1982 Amendment
Amendment by
Effective Date of 1981 Amendment
Amendment by section 301(b)(5) of
Effective and Termination Dates of 1980 Amendment
Amendment by
Effective Date of 1976 Amendment
Section 1402(b)(1) of
Section 1402(b)(2) of
Amendment by section 1901(b)(1)(I)(i), (ii) of
Effective Date of 1964 Amendment
Amendment by
Cross References
Computation of partnership income, see
Partner's distributive share, see
Self-employment income, see
Taxable years of partner and partnership, see
Section Referred to in Other Sections
This section is referred to in
§703. Partnership computations
(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.
(Aug. 16, 1954, ch. 736,
Amendments
1993—Subsec. (b)(1).
1988—Subsec. (b)(1).
1986—Subsec. (b).
1980—Subsec. (b).
1977—Subsec. (a)(2).
1976—Subsec. (a)(2)(G).
Subsec. (b).
1975—Subsec. (a)(2)(G).
1971—Subsec. (b).
1969—Subsec. (b).
1966—Subsec. (b).
Effective Date of 1993 Amendment
Amendment by
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by section 511(d)(2)(B) of
Amendment by section 701(e)(4)(E) of
Effective Date of 1980 Amendment
Amendment by
Effective Date of 1977 Amendment
Amendment by
Effective Date of 1976 Amendment
Amendment by section 1901(b)(21)(F) of
Amendment by section 2115(c)(2) of
Effective Date of 1975 Amendment
Amendment by
Effective Date of 1969 Amendment
Amendment by
Effective Date of 1966 Amendment
Amendment by
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
Cross References
Determination of basis of partner's interest, see
Section Referred to in Other Sections
This section is referred to in
§704. Partner's distributive share
(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 5 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).
(Aug. 16, 1954, ch. 736,
Amendments
1992—Subsec. (c)(1)(B).
1989—Subsec. (c).
1984—Subsec. (c).
1978—Subsec. (d).
1976—Subsec. (a).
Subsec. (b).
Subsec. (c)(2).
Subsec. (d).
Subsec. (f).
Effective Date of 1992 Amendment
Section 1937(c) of
Effective Date of 1989 Amendment
Section 7642(b) of
Effective Date of 1984 Amendment
Section 71(c) of
Effective Date of 1978 Amendment
Amendment by
Effective Date of 1976 Amendment
Amendment by section 213(c)(2), (c)(3)(A), (d) of
Amendment by section 213(e) of
Transitional Rule for Limitation on Allowance of Losses
Section 201(b)(2) of
Cross References
Optional adjustment to basis of partnership property, see
Section Referred to in Other Sections
This section is referred to in
§705. Determination of basis of partner's interest
(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.
(Aug. 16, 1954, ch. 736,
Amendments
1984—Subsec. (a)(3).
1976—Subsec. (a)(3).
Subsec. (b).
Effective Date of 1984 Amendment
Section 722(e)(3)(A) of
Effective Date of 1976 Amendment
Amendment by section 2115(c)(3) of
Section Referred to in Other Sections
This section is referred to in
§706. Taxable years of partner and partnership
(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), section 645, 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) Partner who retires or sells interest in partnership
(A) Disposition of entire interest
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.
(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).
(Aug. 16, 1954, ch. 736,
Amendments
1988—Subsec. (b)(1)(B)(i).
Subsec. (b)(1)(B)(iii).
Subsec. (b)(4).
"(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).
1986—Subsec. (b).
Subsec. (b)(1).
Subsec. (b)(4).
Subsec. (d)(2)(A)(i).
Subsec. (d)(2)(B).
Subsec. (d)(2)(C)(i).
1984—Subsec. (c)(2)(A).
Subsec. (c)(2)(B).
Subsec. (d).
1976—Subsec. (b)(1), (2).
Subsec. (c)(2).
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by section 806(a) of
Amendment by section 1805(a) of
Effective Date of 1984 Amendment
Section 72(c) of
"(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
Construction of Section 806 of Pub. L. 99–514
Nothing in section 806 of
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 [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
Section Referred to in Other Sections
This section is referred to in
§707. Transactions between partner and partnership
(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).
(Aug. 16, 1954, ch. 736,
Amendments
1986—Subsec. (a)(2)(B)(iii).
Subsec. (b)(1).
Subsec. (b)(1)(A).
Subsec. (b)(2)(A).
Subsec. (b)(2)(B).
1984—Subsec. (a).
1976—Subsec. (b)(2).
Subsec. (c).
Effective Date of 1986 Amendment
Amendment by section 642(a)(2) of
Amendment by sections 1805(b) and 1812(c)(3)(B) of
Section 1812(c)(3)(A) of
Effective Date of 1984 Amendment
Section 73(b) of
"(1)
"(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)
"(3)
"(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
Amendment by section 1901(b)(3)(C) of
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 [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
Cross References
Payments to retiring partner or deceased partner's successor in interest, see
Section Referred to in Other Sections
This section is referred to in
§708. Continuation of partnership
(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.
(Aug. 16, 1954, ch. 736,
Section Referred to in Other Sections
This section is referred to in
§709. Treatment of organization and syndication fees
(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.
(Added
Effective Date
Section 213(f) of
"(1)
"(2)
"(3)
PART II—CONTRIBUTIONS, DISTRIBUTIONS, AND TRANSFERS
Subpart A—Contributions to a Partnership
Amendments
1984—
§721. Nonrecognition of gain or loss on contribution
(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.
(Aug. 16, 1954, ch. 736,
Amendments
1976—
Effective Date of 1976 Amendment
Section 2131(f)(3)–(5) of
"(3) Except as provided in paragraph (4), the amendments made by subsections (b) and (c) [amending this section and
"(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."
Section Referred to in Other Sections
This section is referred to in
§722. Basis of contributing partner's interest
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.
(Aug. 16, 1954, ch. 736,
Amendments
1984—
1976—
Effective Date of 1984 Amendment
Section 722(f)(2) of
Effective Date of 1976 Amendment
For effective date of amendment made by
Cross References
Determination of basis of partner's interest, see
Section Referred to in Other Sections
This section is referred to in
§723. Basis of property contributed to partnership
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.
(Aug. 16, 1954, c. 736,
Amendments
1984—
1976—
Effective Date of 1984 Amendment
Amendment by
Effective Date of 1976 Amendment
For effective date of amendment made by
§724. Character of gain or loss on contributed unrealized receivables, inventory items, and capital loss property
(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)(2) (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
Subparagaph 1 (A) shall not apply to any stock in a C corporation received in an exchange described in section 351.
(Added
Effective Date
Section 74(d)(1) of
1 So in original. Probably should be "Subparagraph".
Subpart B—Distributions by a Partnership
Amendments
1992—
§731. Extent of recognition of gain or loss on distribution
(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)(2)).
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)(2)), 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).
(Aug. 16, 1954, ch. 736,
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
Amendments
1994—Subsecs. (c), (d).
1992—Subsec. (c).
Effective Date of 1994 Amendment
Section 741(c) of
"(1)
"(2)
"(3)
"(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)
"(A)
"(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)
"(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 [
"(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)
Effective Date of 1992 Amendment
Amendment by
Section Referred to in Other Sections
This section is referred to in
§732. Basis of distributed property other than money
(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
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.
(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).
(Aug. 16, 1954, ch. 736,
Amendments
1976—Subsec. (d).
Section Referred to in Other Sections
This section is referred to in
§733. Basis of distributee partner's interest
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.
(Aug. 16, 1954, ch. 736,
Cross References
Determination of basis of partner's interest, see
Section Referred to in Other Sections
This section is referred to in
§734. Optional adjustment to basis of undistributed partnership property
(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.
(Aug. 16, 1954, ch. 736,
Amendments
1984—Subsec. (b).
Effective Date of 1984 Amendment
Section 78(b) of
Section Referred to in Other Sections
This section is referred to in
§735. Character of gain or loss on disposition of distributed property
(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)(2)) 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)(2) (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.
(Aug. 16, 1954, ch. 763,
Amendments
1984—Subsec. (c).
1976—Subsec. (a)(1), (2).
Effective Date of 1984 Amendment
Section 74(d)(2) of
Effective Date of 1976 Amendment
Amendment by
Section Referred to in Other Sections
This section is referred to in
§736. Payments to a retiring partner or a deceased partner's successor in interest
(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.
(Aug. 16, 1954, ch. 736,
Amendments
1993—Subsec. (b)(3).
Subsec. (c).
1978—Subsec. (c).
1976—Subsec. (b)(1).
Effective Date of 1993 Amendment
Section 13262(c) of
"(1)
"(2)
Effective Date of 1978 Amendment
Amendment by
Cross References
Extent of recognition of gain or loss on distribution, see
Partner receiving income in respect of decedent, see
Section Referred to in Other Sections
This section is referred to in
§737. Recognition of precontribution gain in case of certain distributions to contributing partner
(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 5 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).
(Added
Codification
Amendments
1994—Subsec. (c)(1).
Subsec. (e).
Effective Date of 1994 Amendment
Amendment by
Effective Date
Section applicable to distributions on or after June 25, 1992, see section 1937(c) of
Section Referred to in Other Sections
This section is referred to in
Subpart C—Transfers of Interests in a Partnership
§741. Recognition and character of gain or loss on sale or exchange
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 which have appreciated substantially in value).
(Aug. 16, 1954, ch. 736,
Section Referred to in Other Sections
This section is referred to in
§742. Basis of transferee partner's interest
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).
(Aug. 16, 1954, ch. 736,
Cross References
Determination of basis of partner's interest, see
Section Referred to in Other Sections
This section is referred to in
§743. Optional adjustment to basis of partnership property
(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.
(Aug. 16, 1954, ch. 736,
Amendments
1984—Subsec. (b).
1976—Subsec. (b).
Effective Date of 1984 Amendment
Amendment by
Cross References
Manner of electing optional adjustment to basis of partnership property, see
Rules for allocation of basis, see
Section Referred to in Other Sections
This section is referred to in
Subpart D—Provisions Common to Other Subparts
§751. Unrealized receivables and inventory items
(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 which have appreciated substantially in value,
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 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),
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.
(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 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 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 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 or 741, as the case may be) such property had been sold by the partnership.
(d) Inventory items which have appreciated substantially in value
(1) Substantial appreciation
(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 section relating to inventory items.
(2) Inventory items
For purposes of this subchapter the term "inventory items" means—
(A) property of the partnership of the kind described in section 1221(1),
(B) 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,
(C) 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
(D) 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 subparagraph (A), (B), or (C).
(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.
(Aug. 16, 1954, ch. 736,
Amendments
1993—Subsec. (c).
Subsec. (d)(1).
"(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).
1986—Subsec. (c).
1984—Subsec. (c).
Subsec. (f).
1983—Subsec. (c).
1978—Subsec. (c).
Subsec. (e).
1976—Subsec. (b)(1).
Subsec. (c).
1969—Subsec. (c).
1966—Subsec. (c).
1964—Subsec. (c).
1962—Subsec. (c).
Subsec. (d)(2).
Effective Date of 1993 Amendment
Section 13206(e)(2) of
Amendment by section 13262(b)(1) and (2)(A) of
Effective Date of 1986 Amendment
Amendment by section 201(d)(10) of
Amendment by section 201(d)(10) of
Effective Date of 1984 Amendment
Amendment by section 43(c)(3) of
Section 76(b) of
Amendment by section 492(b)(4) of
Effective Date of 1983 Amendment
Amendment by
Effective Date of 1978 Amendments
Amendment by
Section 701(u)(13)(C) of
Effective Date of 1976 Amendment
Amendment by section 205(b) of
Amendment by section 1042(c)(2) of
Amendment by section 1101(d)(2) of
Amendment by section 1901(a)(93) of
Section 2110(b) of
Effective Date of 1969 Amendment
Amendment by
Effective Date of 1966 Amendment
Amendment by
Effective Date of 1964 Amendment
Amendment by
Effective Date of 1962 Amendment
Amendment by section 13(f)(1) of
Amendment by section 14(b)(2) of
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 [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
Cross References
Extent of recognition of gain or loss on distribution, see
Recognition and character of gain or loss on sale or exchange, see
Section Referred to in Other Sections
This section is referred to in
1 So in original. The comma probably should not appear.
§752. Treatment of certain liabilities
(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.
(Aug. 16, 1954, ch. 736,
Overruling of Raphan Case
"(a)
"(b)
Section Referred to in Other Sections
This section is referred to in
§753. Partner receiving income in respect of decedent
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.
(Aug. 16, 1954, ch. 736,
Section Referred to in Other Sections
This section is referred to in
§754. Manner of electing optional adjustment to basis of partnership property
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.
(Aug. 16, 1954, ch. 736,
Amendments
1976—
Cross References
Optional adjustment to basis of—
Partnership property, see
Undistributed partnership property, see section 734 of this title.
Section Referred to in Other Sections
This section is referred to in
§755. Rules for allocation of basis
(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.
(Aug. 16, 1954, ch. 736,
Amendments
1976—Subsecs. (a), (b).
Section Referred to in Other Sections
This section is referred to in
PART III—DEFINITIONS
§761. Terms defined
(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).
(Aug. 16, 1954, ch. 736,
Amendments
1986—Subsec. (e).
1984—Subsecs. (e), (f).
1980—Subsec. (a)(3).
1976—Subsec. (a).
Subsec. (e).
Effective Date of 1986 Amendment
Amendment by
Effective Date of 1984 Amendment
Amendment by
Effective Date of 1980 Amendment
Amendment by
Effective Date of 1976 Amendment
Amendment by section 213(c)(3)(B) of
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 [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
Section Referred to in Other Sections
This section is referred to in
[PART IV—REPEALED]
[§771. Repealed. Pub. L. 94–455, title XIX, §1901(a)(94), Oct. 4, 1976, 90 Stat. 1780 ]
Section, act Aug. 16, 1954, ch. 736,