§709 — Title 26 Internal Revenue Code | U.S. Code

Summary

Partnerships normally cannot write off fees paid to form the partnership or to sell partnership interests. If a partnership chooses a special option under rules the Secretary sets, it can deduct some start-up costs when the business begins. It may deduct up to $5,000 in the first year, but that $5,000 is cut dollar-for-dollar if total start-up costs go over $50,000 and cannot fall below zero. Any remaining start-up costs are then spread out and deducted evenly over 180 months starting the month the partnership begins business. If the partnership ends before the 180 months are up, any leftover deferred costs may be deducted as allowed under section 165. "Organizational expenses" here means costs tied to creating the partnership, costs recorded as capital, and costs that would normally be amortized over the partnership’s life if it had a set life.

Title 26, §709

Internal Revenue Code — Source: USLM XML via OLRC

(a)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)(1)If a partnership elects the application of this subsection (in accordance with regulations prescribed by the Secretary) with respect to any organizational expenses—

(A)the partnership shall be allowed a deduction for the taxable year in which the partnership begins business in an amount equal to the lesser of—

(i)the amount of organizational expenses with respect to the partnership, or

(ii)$5,000, reduced (but not below zero) by the amount by which such organizational expenses exceed $50,000, and

(B)the remainder of such organizational expenses shall be allowed as a deduction ratably over the 180-month period beginning with the month in which the partnership begins business.

(2)In any case in which a partnership is liquidated before the end of the period to which paragraph (1)(B) applies, any deferred expenses attributable to the partnership which were not allowed as a deduction by reason of this section may be deducted to the extent allowable under section 165.

(3)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.

Notes & Related Subsidiaries

Editorial Notes

Amendments

2005—Subsec. (b)(1). Pub. L. 109–135 substituted “partnership” for “taxpayer” in introductory provisions and before “shall be allowed” in subpar. (A). 2004—Subsec. (b). Pub. L. 108–357 substituted “Deduction” for “Amortization” in heading, added par. (2), redesignated former par. (2) as (3), and amended heading and text of par. (1) generally. Prior to amendment, text of par. (1) read as follows: “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.”

Statutory Notes and Related Subsidiaries

Effective Date

of 2005 AmendmentAmendment by Pub. L. 109–135 effective as if included in the provision of the American Jobs Creation Act of 2004, Pub. L. 108–357, to which such amendment relates, see section 403(nn) of Pub. L. 109–135, set out as a note under section 26 of this title.

Effective Date

of 2004 AmendmentAmendment by Pub. L. 108–357 applicable to amounts paid or incurred after Oct. 22, 2004, see section 902(d) of Pub. L. 108–357, set out as a note under section 195 of this title.

Effective Date

Pub. L. 94–455, title II, § 213(f), Oct. 4, 1976, 90 Stat. 1548, as amended by Pub. L. 99–514, § 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 section 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.”

§709 Treatment of organization and syndication fees

Summary

Title 26, §709

Notes & Related Subsidiaries

Editorial Notes

Amendments

Regulations

Statutory Notes and Related Subsidiaries

Effective Date

Effective Date

Effective Date

Amendments

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