§ 706. Taxable years of partner and partnership

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. 242 · 68A Stat. 242

   Enacted · 26 U.S.C. § 706

   Aug. 16, 1954, ch. 736, 68A Stat. 242

   Source evidence

   Code source credit
   Aug. 16, 1954, ch. 736, 68A Stat. 242

2. 1976

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

   Struck · 26 U.S.C. § 706(b)(1); 26 U.S.C. § 706(b)(2)

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

   Source evidence

   Code amendment note
   Subsec. (b)(1), (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”.

3. 1976

   Pub. L. 94–455 title II § 213(c)(1) · 90 Stat. 1520

   1. Substituted · 26 U.S.C. § 706(c)(2)

      Pub. L. 94–455, §§ 213(c)(1), 1906(b)(13)(A), substituted “or with respect to a partner whose interest is reduced (whether by entry of a new partner, partial liquidation of a partner’s interest, gift, or otherwise)” for “or with respect to a partner whose interest is reduced”, in par. (B)

   2. Struck · 26 U.S.C. § 706(c)(2)

      Pub. L. 94–455, §§ 213(c)(1), 1906(b)(13)(A), struck out “or his delegate” after “Secretary” in par. (A)

   Source evidence

   Code amendment note
   Subsec. (c)(2). Pub. L. 94–455, §§ 213(c)(1), 1906(b)(13)(A), substituted “or with respect to a partner whose interest is reduced (whether by entry of a new partner, partial liquidation of a partner’s interest, gift, or otherwise)” for “or with respect to a partner whose interest is reduced”, in par. (B), and struck out “or his delegate” after “Secretary” in par. (A).

   Enacted provision · exact public law section
   (1) In general.— Subparagraph (B) of section 706(c)(2) 26 USC 706. (relating to disposition of less than entire interest) is amended by striking out “or with respect to a partner whose interest is reduced” and inserting in lieu thereof “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)”.

4. 1984

   Tax Reform Act of 1984

   Pub. L. 98–369 § 72(b)(1) · 98 Stat. 494

   Struck · 26 U.S.C. § 706(c)(2)(A)

   Pub. L. 98–369, § 72(b)(1), struck out last sentence providing that such partner’s distributive share of item described in section 702(a) for such year shall be determined, under regulations prescribed by the Secretary, for the period ending with such sale, exchange, or liquidation

   Source evidence

   Code amendment note
   Subsec. (c)(2)(A). Pub. L. 98–369, § 72(b)(1), struck out last sentence providing that such partner’s distributive share of item described in section 702(a) for such year shall be determined, under regulations prescribed by the Secretary, for the period ending with such sale, exchange, or liquidation.

   Enacted provision · exact public law section
   (1) by striking out the last sentence of subparagraph (A), and

5. 1984

   Tax Reform Act of 1984

   Pub. L. 98–369 § 72(b)(2) · 98 Stat. 494

   Struck · 26 U.S.C. § 706(c)(2)(B)

   Pub. L. 98–369, § 72(b)(2), struck out “, but such partner’s distributive share of items described in section 702(a) shall be determined by taking into account his varying interests in the partnership during the taxable year” after “otherwise)”

   Source evidence

   Code amendment note
   Subsec. (c)(2)(B). Pub. L. 98–369, § 72(b)(2), struck out “, but such partner’s distributive share of items described in section 702(a) shall be determined by taking into account his varying interests in the partnership during the taxable year” after “otherwise)”.

   Enacted provision · exact public law section
   (2) by striking out ”, but such partner’s distributive share of items described in section 702(a) shall be determined by taking into account his varying interests in the partnership during the taxable year” in subparagraph (B).

6. 1984

   Tax Reform Act of 1984

   Pub. L. 98–369 § 72(a) · 98 Stat. 494

   Added · 26 U.S.C. § 706(d)

   Pub. L. 98–369, § 72(a), added subsec. (d)

   Source evidence

   Code amendment note
   Subsec. (d). Pub. L. 98–369, § 72(a), added subsec. (d).

   Enacted provision · exact public law section
   (a) General Rule.— Section 706 (relating to taxable years of 26 USC 706. partner and partnership) is amended by adding at the end thereof the following new subsection: “(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 each 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 which are described in paragraph (1) and 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 such 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 partner-ship 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 (herein-after 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 partner-ship 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).”

7. 1986

   Tax Reform Act of 1986

   Pub. L. 99–514 § 806(a)(3) · 100 Stat. 2085

   Struck · 26 U.S.C. § 706(b)

   Pub. L. 99–514, § 806(a)(3), struck out “Adoption of” before “taxable year” in heading

   Source evidence

   Code amendment note
   Subsec. (b). Pub. L. 99–514, § 806(a)(3), struck out “Adoption of” before “taxable year” in heading.

   Enacted provision · exact public law section
   (A) such change shall be treated as initiated by the taxpayer,

8. 1986

   Tax Reform Act of 1986

   Pub. L. 99–514 § 806(a)(1) · 100 Stat. 2085

   Amended · 26 U.S.C. § 706(b)(1)

   Pub. L. 99–514, § 806(a)(1), amended par. (1) generally. Prior to amendment, par. (1) read as follows: “The taxable year of a partnership shall be determined as though the partnership were a taxpayer. A partnership may not change to, or adopt, a taxable year other than that of all its principal partners unless it establishes, to the satisfaction of the Secretary, a business purpose therefor.”

   Source evidence

   Code amendment note
   Subsec. (b)(1). Pub. L. 99–514, § 806(a)(1), amended par. (1) generally. Prior to amendment, par. (1) read as follows: “The taxable year of a partnership shall be determined as though the partnership were a taxpayer. A partnership may not change to, or adopt, a taxable year other than that of all its principal partners unless it establishes, to the satisfaction of the Secretary, a business purpose therefor.”

   Enacted provision · exact public law section
   (A) such change shall be treated as initiated by the taxpayer,

9. 1986

   Tax Reform Act of 1986

   Pub. L. 99–514 § 806(a)(2) · 100 Stat. 2085

   Added · 26 U.S.C. § 706(b)(4)

   Pub. L. 99–514, § 806(a)(2), added par. (4)

   Source evidence

   Code amendment note
   Subsec. (b)(4). Pub. L. 99–514, § 806(a)(2), added par. (4).

   Enacted provision · exact public law section
   (A) such change shall be treated as initiated by the taxpayer,

10. 1986

    Tax Reform Act of 1986

    Pub. L. 99–514 § 1805(a)(1)(A) · 100 Stat. 2085

    Substituted · 26 U.S.C. § 706(d)(2)(A)(i)

    Pub. L. 99–514, § 1805(a)(1)(A), substituted “such item” for “each such item”

    Source evidence

    Code amendment note
    Subsec. (d)(2)(A)(i). Pub. L. 99–514, § 1805(a)(1)(A), substituted “such item” for “each such item”.

    Enacted provision · exact public law section
    (A) Clause (i) of section 706(d)(2)(A) is amended by striking out “each such item” and inserting in lieu thereof “such item”.

11. 1986

    Tax Reform Act of 1986

    Pub. L. 99–514 § 1805(a)(1)(B) · 100 Stat. 2085

    Struck · 26 U.S.C. § 706(d)(2)(B)

    Pub. L. 99–514, § 1805(a)(1)(B), in introductory provisions, struck out “which are described in paragraph (1) and” after “the following items”

    Source evidence

    Code amendment note
    Subsec. (d)(2)(B). Pub. L. 99–514, § 1805(a)(1)(B), in introductory provisions, struck out “which are described in paragraph (1) and” after “the following items”.

    Enacted provision · exact public law section
    (B) Subparagraph (B) of section 706(d)(2) is amended by striking out “which are described in paragraph (1) and”.

12. 1986

    Tax Reform Act of 1986

    Pub. L. 99–514 § 1805(a)(2) · 100 Stat. 2085

    Substituted · 26 U.S.C. § 706(d)(2)(C)(i)

    Pub. L. 99–514, § 1805(a)(2), substituted “the first day of the taxable year” for “the first day of such taxable year”

    Source evidence

    Code amendment note
    Subsec. (d)(2)(C)(i). Pub. L. 99–514, § 1805(a)(2), substituted “the first day of the taxable year” for “the first day of such taxable year”.

    Enacted provision · exact public law section
    (2) Clerical amendment.— Clause (i) of section 706(d)(2)(C) (relating to items attributable to periods not within taxable year) is amended by striking out “the first day of such taxable year” and inserting in lieu thereof “the first day of the taxable year”.

13. 1988

    Technical and Miscellaneous Revenue Act of 1988

    Pub. L. 100–647 § 1008(e)(1)(A) · 102 Stat. 3342

    Amended · 26 U.S.C. § 706(b)(1)(B)(i)

    Pub. L. 100–647, § 1008(e)(1)(A), amended cl. (i) generally. Prior to amendment, cl. (i) read as follows: “the taxable year of 1 or more of its partners who have an aggregate interest in partnership profits and capital of greater than 50 percent,”

    Source evidence

    Code amendment note
    Subsec. (b)(1)(B)(i). Pub. L. 100–647, § 1008(e)(1)(A), amended cl. (i) generally. Prior to amendment, cl. (i) read as follows: “the taxable year of 1 or more of its partners who have an aggregate interest in partnership profits and capital of greater than 50 percent,”.

    Enacted provision · exact public law section
    (A) Clause (i) of section 706(b)(1)(B) of the 1986 Code is amended to read as follows: “(i) the majority interest taxable year (as defined in paragraph (4)),”.

14. 1988

    Technical and Miscellaneous Revenue Act of 1988

    Pub. L. 100–647 § 1008(e)(2) · 102 Stat. 3342

    Substituted · 26 U.S.C. § 706(b)(1)(B)(iii)

    Pub. L. 100–647, § 1008(e)(2), substituted “unless the Secretary by regulations prescribes another period” for “or such other period as the Secretary may prescribe in regulations”

    Source evidence

    Code amendment note
    Subsec. (b)(1)(B)(iii). Pub. L. 100–647, § 1008(e)(2), substituted “unless the Secretary by regulations prescribes another period” for “or such other period as the Secretary may prescribe in regulations”.

    Enacted provision · exact public law section
    (2) Clause (iii) of section 706(b)(1)(B) of the 1986 Code is amended by striking out “or such other period as the Secretary may prescribe in regulations” and inserting in lieu thereof “unless the Secretary by regulations prescribes another period”.

15. 1988

    Technical and Miscellaneous Revenue Act of 1988

    Pub. L. 100–647 § 1008(e)(1)(B) · 102 Stat. 3342

    1. Substituted · 26 U.S.C. § 706(b)(4)

       Pub. L. 100–647, § 1008(e)(1)(B), substituted “Majority interest taxable year; limitation on required changes” for “Application of majority interest rule” in heading

    2. Amended · 26 U.S.C. § 706(b)(4)

       Pub. L. 100–647, § 1008(e)(1)(B), amended text generally. Prior to amendment, text read as follows: “Clause (i) of paragraph (1)(B) shall not apply to any taxable year of a partnership unless the period which constitutes the taxable year of 1 or more of its partners who have an aggregate interest in partnership profits and capital of greater than 50 percent has been the same for—

    Source evidence

    Code amendment note
    Subsec. (b)(4). Pub. L. 100–647, § 1008(e)(1)(B), substituted “Majority interest taxable year; limitation on required changes” for “Application of majority interest rule” in heading and amended text generally. Prior to amendment, text read as follows: “Clause (i) of paragraph (1)(B) shall not apply to any taxable year of a partnership unless the period which constitutes the taxable year of 1 or more of its partners who have an aggregate interest in partnership profits and capital of greater than 50 percent has been the same for—

    “(A) the 3-taxable year period of such partner or partners ending on or before the beginning of such taxable year of the partnership, or “(B) if the partnership has not been in existence during all of such 3-taxable year period, the taxable years of such partner or partners ending with or within the period of existence. This paragraph shall apply without regard to whether the same partners or interests are taken into account in determining the 50 percent interest during any period.”

    Enacted provision · exact public law section
    (B) Paragraph (4) of section 706(b) of the 1986 Code is amended to read as follows: “(4) Majority interest taxable year; limitation on required changes.— “(A) Majority interest taxable year defined.— For purposes of paragraph (I)(B)(i)— “(i) In general.— The term ‘majority interest tax-able 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 (I)(B)(i), the taxable year of a partnership is changed, such partner-ship shall not be required to change to another taxable year for either of the 2 taxable years following the year of change.”

16. 1988

    Technical and Miscellaneous Revenue Act of 1988

    Pub. L. 100–647 § 1008(e)(3) · 102 Stat. 3342

    Added · 26 U.S.C. § 706(b)(5)

    Pub. L. 100–647, § 1008(e)(3), added par. (5)

    Source evidence

    Code amendment note
    Subsec. (b)(5). Pub. L. 100–647, § 1008(e)(3), added par. (5).

    Enacted provision · exact public law section
    (3) Section 706(b) of the 1986 Code is amended by adding at the end thereof the following new paragraph: “(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.”

17. 1997

    Pub. L. 105–34 § 507(b)(2) · 111 Stat. 788

    Substituted · 26 U.S.C. § 706(b)(5)

    Pub. L. 105–34, § 507(b)(2), substituted “section 644” for “section 645”

    Source evidence

    Code amendment note
    Subsec. (b)(5). Pub. L. 105–34, § 507(b)(2), substituted “section 644” for “section 645”.

    Enacted provision · exact public law section
    (2) Paragraph (5) of section 706(b) is amended by striking “section 645” and inserting “section 644”.

    Effective date note
    Amendment by section 507(b)(2) of Pub. L. 105–34 applicable to sales or exchanges after Aug. 5, 1997, see section 507(c)(2) of Pub. L. 105–34, set out as a note under section 644 of this title. Pub. L. 105–34, title XII, § 1246(c), Aug. 5, 1997, 111 Stat. 1030, provided that: “The amendments made by this section [amending this section] shall apply to partnership taxable years beginning after December 31, 1997.”

18. 1997

    Pub. L. 105–34 § 1246(b) · 111 Stat. 788

    Substituted · 26 U.S.C. § 706(c)(2)

    Pub. L. 105–34, § 1246(b), substituted “Treatment of dispositions” for “Partner who retires or sells interest in partnership” as heading

    Source evidence

    Code amendment note
    Subsec. (c)(2). Pub. L. 105–34, § 1246(b), substituted “Treatment of dispositions” for “Partner who retires or sells interest in partnership” as heading.

    Enacted provision · exact public law section
    (b) Clerical Amendment.— The paragraph heading for paragraph (2) of section 706(c) is amended to read as follows: “(2) Treatment of dispositions.—”.

    Effective date note
    Amendment by section 507(b)(2) of Pub. L. 105–34 applicable to sales or exchanges after Aug. 5, 1997, see section 507(c)(2) of Pub. L. 105–34, set out as a note under section 644 of this title. Pub. L. 105–34, title XII, § 1246(c), Aug. 5, 1997, 111 Stat. 1030, provided that: “The amendments made by this section [amending this section] shall apply to partnership taxable years beginning after December 31, 1997.”

19. 1997

    Pub. L. 105–34 § 1246(a) · 111 Stat. 788

    Amended · 26 U.S.C. § 706(c)(2)(A)

    Pub. L. 105–34, § 1246(a), amended heading and text of subpar. (A) generally. Prior to amendment, text read as follows: “The taxable year of a partnership shall close—

    Source evidence

    Code amendment note
    Subsec. (c)(2)(A). Pub. L. 105–34, § 1246(a), amended heading and text of subpar. (A) generally. Prior to amendment, text read as follows: “The taxable year of a partnership shall close—

    “(i) with respect to a partner who sells or exchanges his entire interest in a partnership, and “(ii) with respect to a partner whose interest is liquidated, except that the taxable year of a partnership with respect to a partner who dies shall not close prior to the end of the partnership’s taxable year.”

    Enacted provision · exact public law section
    (a) General Rule.— Subparagraph (A) of section 706(c)(2) (relating to disposition of entire interest) is amended to read as follows: “(A) Disposition of entire interest.— The taxable year of a partnership shall close with respect to a partner whose entire interest in the partnership terminates (whether by reason of death, liquidation, or otherwise).”.

    Effective date note
    Amendment by section 507(b)(2) of Pub. L. 105–34 applicable to sales or exchanges after Aug. 5, 1997, see section 507(c)(2) of Pub. L. 105–34, set out as a note under section 644 of this title. Pub. L. 105–34, title XII, § 1246(c), Aug. 5, 1997, 111 Stat. 1030, provided that: “The amendments made by this section [amending this section] shall apply to partnership taxable years beginning after December 31, 1997.”

20. 2018

    Energy and Water Development and Related Agencies Appropriations Act, 2018

    Pub. L. 115–141 div. U title IV § 401(a)(139) · 132 Stat. 348

    Substituted · 26 U.S.C. § 706(b)(5)

    Pub. L. 115–141 substituted “section 584(i)” for “section 584(h)”

    Source evidence

    Code amendment note
    Subsec. (b)(5). Pub. L. 115–141 substituted “section 584(i)” for “section 584(h)”.

    Enacted provision · exact public law section
    Sec. 401. The Nuclear Regulatory Commission shall comply with the July 5, 2011, version of Chapter VI of its Internal Commission Procedures when responding to Congressional requests for information.

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