PRIA, Government Policy, Made Personal

Summary

Treats many unincorporated groups used to run a business or venture as partnerships for tax rules, but lets all members ask the tax agency to exclude the group from partnership rules if it’s used only for certain limited purposes (only investing, only jointly using or extracting property without selling what’s made, or short-term underwriting/selling by securities dealers) and each member’s income can be figured without computing partnership taxable income. Partnership: an unincorporated group (like a syndicate, pool, or joint venture) used to carry on business and not a corporation, trust, or estate. Partner: a member of a partnership (capital interests count even if received as a gift). Partnership agreement: the partners’ written rules, including changes agreed before the partnership tax return is due. Liquidation of a partner’s interest: when a partner ends their whole stake by getting distributions. Distribution treated as an exchange: a partnership interest given out is treated as an exchange for rules including sections 708 and 743. Qualified joint venture: a husband-and-wife business that won’t be treated as a partnership if only they are members, both materially work in it, they file jointly, and they both elect this; income is split by their shares and each reports their share as sole-proprietor income. See sections 704(b) and 706(c)(2) for sale or reduction rules.

Title 26, §761

Internal Revenue Code, Source: USLM XML via OLRC

(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)

(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. In the case of a capital interest in a partnership in which capital is a material income-producing factor, whether a person is a partner with respect to such interest shall be determined without regard to whether such interest was derived by gift from any other person.

(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)

(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)Qualified joint venture

(1)In general

In the case of a qualified joint venture conducted by a husband and wife who file a joint return for the taxable year, for purposes of this title—

(A)such joint venture shall not be treated as a partnership,

(B)all items of income, gain, loss, deduction, and credit shall be divided between the spouses in accordance with their respective interests in the venture, and

(C)each spouse shall take into account such spouse’s respective share of such items as if they were attributable to a trade or business conducted by such spouse as a sole proprietor.

(2)Qualified joint venture

For purposes of paragraph (1), the term “qualified joint venture” means any joint venture involving the conduct of a trade or business if—

(A)the only members of such joint venture are a husband and wife,

(B)both spouses materially participate (within the meaning of section 469(h) without regard to paragraph (5) thereof) in such trade or business, and

(C)both spouses elect the application of this subsection.

(g)Cross reference

For rules in the case of the sale, exchange, liquidation, or reduction of a partner’s interest, see section 704(b) and 706(c)(2).

Notes & Related Subsidiaries

Editorial Notes

Amendments

2015—Subsec. (b). Pub. L. 114–74 inserted at end “In the case of a capital interest in a partnership in which capital is a material income-producing factor, whether a person is a partner with respect to such interest shall be determined without regard to whether such interest was derived by gift from any other person.” 2007—Subsecs. (f), (g). Pub. L. 110–28 added subsec. (f) and redesignated former subsec. (f) as (g). 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, § 1906(b)(13)(A), struck out “or his delegate” after “Secretary”. Subsec. (e). Pub. L. 94–455, § 213(c)(3)(B), added subsec. (e).

Statutory Notes and Related Subsidiaries

Effective Date

of 2015 AmendmentAmendment by Pub. L. 114–74 applicable to partnership taxable years beginning after Dec. 31, 2015, see section 1102(c) of Pub. L. 114–74, set out as a note under section 704 of this title.

Effective Date

of 2007 Amendment Pub. L. 110–28, title VIII, § 8215(c), May 25, 2007, 121 Stat. 194, provided that: “The

Amendments

made by this section [amending this section, section 1402 of this title, and section 411 of Title 42, The Public Health and Welfare] shall apply to taxable years beginning after December 31, 2006.”

Effective Date

of 1986 AmendmentAmendment 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 AmendmentAmendment 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 AmendmentAmendment 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 AmendmentAmendment 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, 1989For 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 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.

§761 Terms Defined

Summary

Title 26, §761

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