26 USC 707 - Transactions between partner and partnership

U.S Code last checked for updates: May 19, 2024

§ 707.

Transactions between partner and partnership

(a)

Partner not acting in capacity as partner

(1)

In general

(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 interests or profits interests,

any gain recognized shall be considered as ordinary income.

(3)

Ownership of a capital or profits interest

(c)

Guaranteed payments

(Aug. 16, 1954, ch. 736, 68A Stat. 243; Pub. L. 94–455, title II, § 213(b)(3), title XIX, § 1901(b)(3)(C), Oct. 4, 1976, 90 Stat. 1547, 1792; Pub. L. 98–369, div. A, title I, § 73(a), July 18, 1984, 98 Stat. 591; Pub. L. 99–514, title VI, § 642(a)(2), title XVIII, §§ 1805(b), 1812(c)(3)(A), (B), Oct. 22, 1986, 100 Stat. 2284, 2810, 2834.)

cite as: 26 USC 707