§ 704. Partner’s distributive share

Legislative history

Reconstructed from this section’s Code source credit and amendment notes, resolved against the local Statutes at Large. Editorial notes are evidence, not the law that made the change.

1. 1954

   Aug. 16, 1954, ch. 736, 68A Stat. 240 · 68A Stat. 240

   Enacted · 26 U.S.C. § 704

   Aug. 16, 1954, ch. 736, 68A Stat. 240

   Source evidence

   Code source credit
   Aug. 16, 1954, ch. 736, 68A Stat. 240

2. 1976

   Pub. L. 94–455 § 213(c)(2) · 90 Stat. 1520

   Substituted · 26 U.S.C. § 704(a)

   Pub. L. 94–455, § 213(c)(2), substituted “except as otherwise provided in this chapter” for “except as otherwise provided in this section”

   Source evidence

   Code amendment note
   Subsec. (a). Pub. L. 94–455, § 213(c)(2), substituted “except as otherwise provided in this chapter” for “except as otherwise provided in this section”.

   Enacted provision · exact public law section
   (2) Certain provisions of subchapter k mat not be over-ridden by partnership agreement.— Subsection (a) of section 704 (relating to effect of partnership agreement) is amended by striking out “except as otherwise provided in this section” and inserting in lieu thereof “except as otherwise provided in this chapter”,

3. 1976

   Pub. L. 94–455 § 213(d) · 90 Stat. 1520

   1. Substituted · 26 U.S.C. § 704(b)

      Pub. L. 94–455, § 213(d), among other changes, substituted “Determination of distributive share” for “Distributive share determined by income or loss ratio” in par. (2) provision relating to a lack of substantial economic effect in a partnership agreement for provisions relating to the partnership agreement’s purpose being the avoidance or evasion of taxes

   2. Substituted · 26 U.S.C. § 704(b)

      Pub. L. 94–455, § 213(d), among other changes, substituted “the partner’s interest in the partnership (determined by taking into account all facts and circumstances)” for “his distributive share of taxable income or loss of the partnership, as described in section 702(a)(9), for the taxable year” in par. (2) provision relating to a lack of substantial economic effect in a partnership agreement for provisions relating to the partnership agreement’s purpose being the avoidance or evasion of taxes

   Source evidence

   Code amendment note
   Subsec. (b). Pub. L. 94–455, § 213(d), among other changes, substituted “Determination of distributive share” for “Distributive share determined by income or loss ratio” in heading, in provisions preceding par. (1) “the partner’s interest in the partnership (determined by taking into account all facts and circumstances)” for “his distributive share of taxable income or loss of the partnership, as described in section 702(a)(9), for the taxable year”, and in par. (2) provision relating to a lack of substantial economic effect in a partnership agreement for provisions relating to the partnership agreement’s purpose being the avoidance or evasion of taxes.

   Enacted provision · exact public law section
   (d) Determination of Partner’s Distributive Share.— Subsection (b) of section 704 (relating to distributive share determined by income or loss ratio) is amended to read as follows: “(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.”

4. 1976

   Pub. L. 94–455 § 1906(b)(13)(A) · 90 Stat. 1520

   Struck · 26 U.S.C. § 704(c)(2)

   Pub. L. 94–455, § 1906(b)(13)(A), struck out “or his delegate” after “Secretary”

   Source evidence

   Code amendment note
   Subsec. (c)(2). Pub. L. 94–455, § 1906(b)(13)(A), struck out “or his delegate” after “Secretary”.

   Enacted provision · exact public law section
   (A) The Internal Revenue Code of 1954, as amended by this Act, is amended by striking out “Secretary or his delegate” each place it appears and inserting in lieu thereof “Secretary”.

5. 1976

   Pub. L. 94–455 § 213(e) · 90 Stat. 1520

   Inserted · 26 U.S.C. § 704(d)

   Pub. L. 94–455, § 213(e), inserted provision relating to the determination of the adjusted basis of a partner’s liability where there is no personal liability and the applicability of such determination where section 465 of this title applies or the principal activity of the partnership is real estate investment

   Source evidence

   Code amendment note
   Subsec. (d). Pub. L. 94–455, § 213(e), inserted provision relating to the determination of the adjusted basis of a partner’s liability where there is no personal liability and the applicability of such determination where section 465 of this title applies or the principal activity of the partnership is real estate investment.

   Enacted provision · exact public law section
   (e) Treatment of Partnership Liabilities With Respect to Which the Partner Is Not Personally Liable.— Section 704(d) (relating to limitation on allowance of losses) is amended by adding at the end thereof the following new sentences: “For purposes of this subsection, the adjusted basis of any partner’s interest in the partnership shall not include any portion of any partnership liability with respect to which the partner has no personal liability. The preceding sentence, shall not apply with respect to any Ante, p. 1531. activity to the extent that section 465 (relating to limiting deductions to amounts at risk in case of certain activities) applies, nor shall it apply to any partnership the principal activity of which is investing in real property (other than mineral property). ”

6. 1976

   Pub. L. 94–455 § 213(c)(3)(A) · 90 Stat. 1520

   Added · 26 U.S.C. § 704(f)

   Pub. L. 94–455, § 213(c)(3)(A), added subsec. (f)

   Source evidence

   Code amendment note
   Subsec. (f). Pub. L. 94–455, § 213(c)(3)(A), added subsec. (f).

   Enacted provision · exact public law section
   (A) Section 704 is amended by adding at the end thereof the following: “(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).”

7. 1978

   Pub. L. 95–600 title II § 201(b)(1) · 92 Stat. 2763

   Struck · 26 U.S.C. § 704(d)

   Pub. L. 95–600 struck out provisions relating to adjusted basis of a partner’s interest

   Source evidence

   Code amendment note
   Subsec. (d). Pub. L. 95–600 struck out provisions relating to adjusted basis of a partner’s interest.

   Enacted provision · exact public law section
   (1) 26 USC 704. In general.— Subsection (d) of section 704 is amended by striking out the last 2 sentences.

8. 1984

   Tax Reform Act of 1984

   Pub. L. 98–369 div. A title I § 71(a) · 98 Stat. 494

   1. Amended · 26 U.S.C. § 704(c)

      Pub. L. 98–369 amended subsec. (c) generally

   2. Substituted · 26 U.S.C. § 704(c)

      Pub. L. 98–369 substituting provisions directing that, under regulations prescribed by the Secretary, income, gain, loss, and deduction with respect to property contributed to the partnership by a partner be shared among partners so as to take account of the variation between the basis of the property to the partnership and its fair market value at the time of contribution, and that similar rules apply to contributions by a partner (using the cash receipts and disbursements method of accounting) of accounts payable and other accrued but unpaid items for provisions which had directed that, if the partnership agreement so provided, depreciation, depletion, or gain or loss with respect to property contributed to the partnership by a partner would under regulations prescribed by the Secretary, be shared among the partners so as to take account of the variation between the basis of the property to the partnership and its fair market value at the time of contribution

   3. Struck · 26 U.S.C. § 704(c)

      Pub. L. 98–369 struck out provisions which had directed that in determining a partner’s distributive share of items described in section 702(a), depreciation, depletion, or gain or loss with respect to property contributed to the partnership by a partner would, except to the extent otherwise provided, be allocated among the partners in the same manner as if such property had been purchased by the partnership and that if the partnership agreement did not provide otherwise, depreciation, depletion, or gain or loss with respect to undivided interests in property contributed to a partnership would be determined as though such undivided interests had not been contributed to the partnership

   Source evidence

   Code amendment note
   Subsec. (c). Pub. L. 98–369 amended subsec. (c) generally, substituting provisions directing that, under regulations prescribed by the Secretary, income, gain, loss, and deduction with respect to property contributed to the partnership by a partner be shared among partners so as to take account of the variation between the basis of the property to the partnership and its fair market value at the time of contribution, and that similar rules apply to contributions by a partner (using the cash receipts and disbursements method of accounting) of accounts payable and other accrued but unpaid items for provisions which had directed that, if the partnership agreement so provided, depreciation, depletion, or gain or loss with respect to property contributed to the partnership by a partner would under regulations prescribed by the Secretary, be shared among the partners so as to take account of the variation between the basis of the property to the partnership and its fair market value at the time of contribution, and struck out provisions which had directed that in determining a partner’s distributive share of items described in section 702(a), depreciation, depletion, or gain or loss with respect to property contributed to the partnership by a partner would, except to the extent otherwise provided, be allocated among the partners in the same manner as if such property had been purchased by the partnership and that if the partnership agreement did not provide otherwise, depreciation, depletion, or gain or loss with respect to undivided interests in property contributed to a partnership would be determined as though such undivided interests had not been contributed to the partnership.

   Enacted provision · exact public law section
   (a) General Rule.— Subsection (c) of section 704 (relating to 26 USC 704. contributed property) is amended to read as follows: “(c) Contributed Property.— Under regulations prescribed by the Secretary, income, gain, loss, and deduction with respect to property contributed to the partnership by a partner shall be shared among partners so as to take account of the variation between the basis of the property to the partnership and its fair market value at the time of contribution. Under regulations prescribed by the Secretary, rules similar to the rules of the preceding sentence shall apply to contributions by a partner (using the cash receipts and disbursements method of accounting) of accounts payable and other accrued but unpaid items.”

9. 1989

   Revenue Reconciliation Act of 1989

   Pub. L. 101–239 title VII § 7642(a) · 103 Stat. 2106

   Amended · 26 U.S.C. § 704(c)

   Pub. L. 101–239 amended subsec. (c) generally. Prior to amendment, subsec. (c) read as follows: “Under regulations prescribed by the Secretary, income, gain, loss, and deduction with respect to property contributed to the partnership by a partner shall be shared among partners so as to take account of the variation between the basis of the property to the partnership and its fair market value at the time of contribution. Under regulations prescribed by the Secretary, rules similar to the rules of the preceding sentence shall apply to contributions by a partner (using the cash receipts and disbursements method of accounting) of accounts payable and other accrued but unpaid items.”

   Source evidence

   Code amendment note
   Subsec. (c). Pub. L. 101–239 amended subsec. (c) generally. Prior to amendment, subsec. (c) read as follows: “Under regulations prescribed by the Secretary, income, gain, loss, and deduction with respect to property contributed to the partnership by a partner shall be shared among partners so as to take account of the variation between the basis of the property to the partnership and its fair market value at the time of contribution. Under regulations prescribed by the Secretary, rules similar to the rules of the preceding sentence shall apply to contributions by a partner (using the cash receipts and disbursements method of accounting) of accounts payable and other accrued but unpaid items.”

   Enacted provision · exact public law section
   (a) General Rule.— Subsection (c) of section 704 (relating to contributed property) is amended to read as follows: “(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 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.”

10. 1992

    Energy Policy Act of 1992

    Pub. L. 102–486 title XIX § 1937(b)(1) · 106 Stat. 2776

    Substituted · 26 U.S.C. § 704(c)(1)(B)

    Pub. L. 102–486 substituted “is distributed (directly or indirectly)” for “is distributed”

    Source evidence

    Code amendment note
    Subsec. (c)(1)(B). Pub. L. 102–486 substituted “is distributed (directly or indirectly)” for “is distributed”.

    Enacted provision · exact public law section
    (1) Subparagraph (B) of section 704(c)(1) is amended by striking out “is distributed” in the material preceding clause (i) and inserting “is distributed (directly or indirectly)”.

11. 1997

    Pub. L. 105–34 title X § 1063(a) · 111 Stat. 788

    Substituted · 26 U.S.C. § 704(c)(1)(B)

    Pub. L. 105–34 substituted “7 years” for “5 years” in introductory provisions

    Source evidence

    Code amendment note
    Subsec. (c)(1)(B). Pub. L. 105–34 substituted “7 years” for “5 years” in introductory provisions.

    Enacted provision · exact public law section
    (a) In General.— Sections 704(c)(1)(B) and 737(b)(1) are each amended by striking “5 years” and inserting “7 years”.

12. 2004

    Pub. L. 108–357 title VIII § 833(a) · 118 Stat. 1418

    Added · 26 U.S.C. § 704(c)(1)(C)

    Pub. L. 108–357 added subpar. (C)

    Source evidence

    Code amendment note
    Subsec. (c)(1)(C). Pub. L. 108–357 added subpar. (C).

    Enacted provision · exact public law section
    (a) Treatment of Contributed Property With Built-In Loss.— Paragraph (1) of section 704(c) is amended by striking “and” at the end of subparagraph (A), by striking the period at the end of subparagraph (B) and inserting “, and”, and by adding at the end the following: “(C) if any property so contributed has a built-in loss— “(i) such built-in loss shall be taken into account only in determining the amount of items allocated to the contributing partner, and “(ii) except as provided in regulations, in determining the amount of items allocated to other partners, the basis of the contributed property in the hands of the partnership shall be treated as being equal to its fair market value at the time of contribution. For purposes of subparagraph (C), the term ‘built-in loss’ means the excess of the adjusted basis of the property (determined without regard to subparagraph (C)(ii)) over its fair market value at the time of contribution.” .

13. 2015

    <Bipartisan Budget Act of 2015>

    Pub. L. 114–74 title XI § 1102(b) · 129 Stat. 584

    1. Substituted · 26 U.S.C. § 704(e)

       Pub. L. 114–74 substituted “Partnership interests created by gift” for “Family partnerships” in heading

    2. Redesignated · 26 U.S.C. § 704(e)

       Pub. L. 114–74 redesignated pars. (2) and (3) as (1) and (2), respectively

    3. Substituted · 26 U.S.C. § 704(e)

       Pub. L. 114–74 substituted “this subsection” for “this section” in par. (2)

    4. Struck · 26 U.S.C. § 704(e)

       Pub. L. 114–74 struck out former par. (1). Prior to amendment, text of par. (1) read as follows: “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.”

    Source evidence

    Code amendment note
    Subsec. (e). Pub. L. 114–74 substituted “Partnership interests created by gift” for “Family partnerships” in heading, redesignated pars. (2) and (3) as (1) and (2), respectively, substituted “this subsection” for “this section” in par. (2), and struck out former par. (1). Prior to amendment, text of par. (1) read as follows: “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.”

    Enacted provision · exact public law section
    (b) Conforming Amendments.— Section 704(e) 26 USC 704. of such Code is amended— (1) by striking paragraph (1) and by redesignating paragraphs (2) and (3) as paragraphs (1) and (2), respectively, (2) by striking “this section” in paragraph (2) (as so redesignated) and inserting “this subsection”, and (3) by striking “Family Partnerships” in the heading and inserting “Partnership Interests Created by Gift”.

14. 2017

    Pub. L. 115–97 title I § 13503(a) · 131 Stat. 2054

    1. Amended · 26 U.S.C. § 704(d)

       Pub. L. 115–97 designated first and second sentences of existing provisions as pars. (1) and (2), respectively

    2. Inserted · 26 U.S.C. § 704(d)

       Pub. L. 115–97 inserted headings

    3. Added · 26 U.S.C. § 704(d)

       Pub. L. 115–97 added par. (3)

    Source evidence

    Code amendment note
    Subsec. (d). Pub. L. 115–97 designated first and second sentences of existing provisions as pars. (1) and (2), respectively, inserted headings, and added par. (3).

    Enacted provision · exact public law section
    (a) In General.— Subsection (d) of section 704 is amended— (1) by striking “A partner’s distributive share” and inserting the following: “(1) In general.— A partner’s distributive share” , (2) by striking “Any excess of such loss” and inserting the following: “(2) Carryover.— Any excess of such loss” , and (3) by adding at the end the following new paragraph: “(3) Special rules.— “(A) In general.— In determining the amount of any loss under paragraph (1), there shall be taken into account the partner’s distributive share of amounts described in paragraphs (4) and (6) of section 702(a). “(B) Exception.— In the case of a charitable contribution of property whose fair market value exceeds its adjusted basis, subparagraph (A) shall not apply to the extent of the partner’s distributive share of such excess.” .

    Effective date note
    Pub. L. 115–97, title I, § 13503(b), Dec. 22, 2017, 131 Stat. 2141, provided that: “The amendments made by this section [amending this section] shall apply to partnership taxable years beginning after December 31, 2017.”

21 of 22 references resolved to an enrolled provision · 1 partial