26 U.S.C. § 709 — Treatment of organization and syndication

Page 1873 TITLE 26—INTERNAL REVENUE CODE § 709 Pub. L. 99–514, title XVIII, § 1812(c)(3)(A), Oct. 22, 1986, 100 Stat. 2834, provided that the amendment made by that section is effective with respect to sales or ex- changes after Sept. 27, 1985. EFFECTIVE DATE OF 1984 AMENDMENT Pub. L. 98–369, div. A, title I, § 73(b), July 18, 1984, 98 Stat. 592, as amended by Pub. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, provided that: ‘‘(1) IN GENERAL.—The amendment made by sub- section (a) [amending this section] shall apply— ‘‘(A) in the case of arrangements described in sec- tion 707(a)(2)(A) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as amended by subsection (a)), to services performed or property transferred after February 29, 1984, and ‘‘(B) in the case of transfers described in section 707(a)(2)(B) of such Code (as so amended), to property transferred after March 31, 1984. ‘‘(2) BINDING CONTRACT EXCEPTION.—The amendment made by subsection (a) shall not apply to a transfer of property described in section 707(a)(2)(B)(i) if such transfer is pursuant to a binding contract in effect on March 31, 1984, and at all times thereafter before the transfer. ‘‘(3) EXCEPTION FOR CERTAIN TRANSFERS.—The amend- ment made by subsection (a) shall not apply to a trans- fer of property described in section 707(a)(2)(B)(i) that is made before December 31, 1984, if— ‘‘(A) such transfer was proposed in a written private offering memorandum circulated before February 28, 1984; ‘‘(B) the out-of-pocket costs incurred with respect to such offering exceeded $250,000 as of February 28, 1984; ‘‘(C) the encumbrances placed on such property in anticipation of such transfer all constitute obliga- tions for which neither the partnership nor any part- ner is liable; and ‘‘(D) the transferor of such property is the sole gen- eral partner of the partnership.’’ EFFECTIVE DATE OF 1976 AMENDMENT Amendment by section 213(b)(3) of Pub. L. 94–455 ap- plicable in the case of partnership taxable years begin- ning after Dec. 31, 1975, see section 213(f)(1) of Pub. L. 94–455, set out as an Effective Date note under section 709 of this title. Amendment by section 1901(b)(3)(C) of Pub. L. 94–455 effective for taxable years beginning after Dec. 31, 1976, see section 1901(d) of Pub. L. 94–455, set out as a note under section 2 of this title. PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989 For 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. § 708. Continuation of partnership (a) General rule For purposes of this subchapter, an existing partnership shall be considered as continuing if it is not terminated. (b) Termination (1) General rule For purposes of subsection (a), a partnership shall be considered as terminated only if no part of any business, financial operation, or venture of the partnership continues to be car- ried on by any of its partners in a partnership. (2) Special rules (A) Merger or consolidation In the case of the merger or consolidation of two or more partnerships, the resulting partnership shall, for purposes of this sec- tion, be considered the continuation of any merging or consolidating partnership whose members own an interest of more than 50 percent in the capital and profits of the re- sulting partnership. (B) Division of a partnership In the case of a division of a partnership into two or more partnerships, the resulting partnerships (other than any resulting part- nership the members of which had an inter- est of 50 percent or less in the capital and profits of the prior partnership) shall, for purposes of this section, be considered a con- tinuation of the prior partnership. (Aug. 16, 1954, ch. 736, 68A Stat. 244; Pub. L. 115–97, title I, § 13504(a), Dec. 22, 2017, 131 Stat. 2141.) Editorial Notes AMENDMENTS 2017—Subsec. (b)(1). Pub. L. 115–97 struck out dash after ‘‘only if’’ and subpar. (A) designation before ‘‘no part’’ and struck out subpar. (B) which read as follows: ‘‘within a 12-month period there is a sale or exchange of 50 percent or more of the total interest in partner- ship capital and profits’’. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2017 AMENDMENT Amendment by Pub. L. 115–97 applicable to partner- ship taxable years beginning after Dec. 31, 2017, see sec- tion 13504(c) of Pub. L. 115–97, set out as a note under section 168 of this title. § 709. Treatment of organization and syndication fees (a) General rule Except as provided in subsection (b), no deduc- tion 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) Deduction of organization fees (1) Allowance of deduction 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 de- duction for the taxable year in which the partnership begins business in an amount equal to the lesser of— (i) the amount of organizational ex- penses with respect to the partnership, or (ii) $5,000, reduced (but not below zero) by the amount by which such organiza- tional expenses exceed $50,000, and (B) the remainder of such organizational expenses shall be allowed as a deduction rat- ably over the 180-month period beginning Page 1874 TITLE 26—INTERNAL REVENUE CODE § 721 with the month in which the partnership be- gins business. (2) Dispositions before close of amortization period In any case in which a partnership is liq- uidated 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 sec- tion may be deducted to the extent allowable under section 165. (3) Organizational expenses defined The organizational expenses to which para- graph (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 amor- tized over such life. (Added Pub. L. 94–455, title II, § 213(b)(1), Oct. 4, 1976, 90 Stat. 1547; amended Pub. L. 108–357, title VIII, § 902(c), Oct. 22, 2004, 118 Stat. 1651; Pub. L. 109–135, title IV, § 403(ll), Dec. 21, 2005, 119 Stat. 2632.) Editorial Notes AMENDMENTS 2005—Subsec. (b)(1). Pub. L. 109–135 substituted ‘‘part- nership’’ for ‘‘taxpayer’’ in introductory provisions and before ‘‘shall be allowed’’ in subpar. (A). 2004—Subsec. (b). Pub. L. 108–357 substituted ‘‘Deduc- tion’’ for ‘‘Amortization’’ in heading, added par. (2), re- designated 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 pre- scribed by the Secretary), be treated as deferred ex- penses. Such deferred expenses shall be allowed as a de- duction ratably over such period of not less than 60 months as may be selected by the partnership (begin- ning 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 de- ducted to the extent provided in section 165.’’ Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2005 AMENDMENT Amendment 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 AMENDMENT Amendment 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 sections 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 sub- section (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.’’ PART II—CONTRIBUTIONS, DISTRIBUTIONS, AND TRANSFERS Subpart A. Contributions to a partnership. B. Distributions by a partnership. C. Transfers of interests in a partnership. D. Provisions common to other subparts. SUBPART A—CONTRIBUTIONS TO A PARTNERSHIP Sec. 721. Nonrecognition of gain or loss on contribu- tion. 722. Basis of contributing partner’s interest. 723. Basis of property contributed to partnership. 724. Character of gain or loss on contributed unre- alized receivables, inventory items, and capital loss property. Editorial Notes AMENDMENTS 1984—Pub. L. 98–369, div. A, title I, § 74(c), July 18, 1984, 98 Stat. 593, added item 724. § 721. Nonrecognition of gain or loss on contribu- tion (a) General rule No gain or loss shall be recognized to a part- nership or to any of its partners in the case of a contribution of property to the partnership in exchange for an interest in the partnership. (b) Special rule Subsection (a) shall not apply to gain realized on a transfer of property to a partnership which would be treated as an investment company (within the meaning of section 351) if the part- nership were incorporated. (c) Regulations relating to certain transfers to partnerships The Secretary may provide by regulations that subsection (a) shall not apply to gain real- ized on the transfer of property to a partnership if such gain, when recognized, will be includible in the gross income of a person other than a United States person. (d) Transfers of intangibles For regulatory authority to treat intangibles transferred to a partnership as sold, see section 367(d)(3). (Aug. 16, 1954, ch. 736, 68A Stat. 245; Pub. L. 94–455, title XXI, § 2131(b), Oct. 4, 1976, 90 Stat. 1924; Pub. L. 105–34, title XI, § 1131(b)(3), (5)(B), Aug. 5, 1997, 111 Stat. 979, 980.) Editorial Notes CODIFICATION Another section 1131(b) of Pub. L. 105–34 enacted sec- tion 684 of this title.