26 U.S.C. § 1061 — Partnership interests held in connection

Page 2301 TITLE 26—INTERNAL REVENUE CODE § 1061 1 So in original. Probably should be ‘‘section’’. Nov. 5, 1990, 104 Stat. 1388–464; Pub. L. 103–66, title XIII, § 13261(e), Aug. 10, 1993, 107 Stat. 539.) Editorial Notes PRIOR PROVISIONS A prior section 1060 was renumbered section 1062 of this title. AMENDMENTS 1993—Subsec. (b)(1). Pub. L. 103–66, § 13261(e)(1), sub- stituted ‘‘section 197 intangibles’’ for ‘‘goodwill or going concern value’’. Subsec. (d)(1). Pub. L. 103–66, § 13261(e)(2), substituted ‘‘section 197 intangibles’’ for ‘‘goodwill or going con- cern value (or similar items)’’. 1990—Subsec. (a). Pub. L. 101–508, § 11323(a), inserted at end ‘‘If in connection with an applicable asset acqui- sition, the transferee and transferor agree in writing as to the allocation of any consideration, or as to the fair market value of any of the assets, such agreement shall be binding on both the transferee and transferor unless the Secretary determines that such allocation (or fair market value) is not appropriate.’’ Subsecs. (e), (f). Pub. L. 101–508, § 11323(b)(1), added subsec. (e) and redesignated former subsec. (e) as (f). 1988—Subsec. (b)(3). Pub. L. 100–647, § 1006(h)(1), sub- stituted ‘‘deems’’ for ‘‘may find’’. Subsec. (d). Pub. L. 100–647, § 1006(h)(2), added subsec. (d). Subsec. (e). Pub. L. 100–647, § 1006(h)(3)(B), added sub- sec. (e). Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 1993 AMENDMENT Amendment by Pub. L. 103–66 applicable, except as otherwise provided, with respect to property acquired after Aug. 10, 1993, see section 13261(g) of Pub. L. 103–66, set out as an Effective Date note under section 197 of this title. EFFECTIVE DATE OF 1990 AMENDMENT Amendment by Pub. L. 101–508 applicable to acquisi- tions after Oct. 9, 1990, but not applicable to any acqui- sition pursuant to a written binding contract in effect on Oct. 9, 1990, and at all times thereafter before such acquisition, see section 11323(d) of Pub. L. 101–508, set out as a note under section 338 of this title. EFFECTIVE DATE OF 1988 AMENDMENT Amendment by Pub. L. 100–647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99–514, to which such amendment relates, see section 1019(a) of Pub. L. 100–647, set out as a note under section 1 of this title. EFFECTIVE DATE OF 1986 AMENDMENT Pub. L. 99–514, title VI, § 641(c), Oct. 22, 1986, 100 Stat. 2283, provided that: ‘‘The amendments made by this section [enacting this section and renumbering former section 1060 of this title as section 1061] shall apply to any acquisition of assets after May 6, 1986, unless such acquisition is pursuant to a binding contract which was in effect on May 6, 1986, and at all times thereafter.’’ § 1061. Partnership interests held in connection with performance of services (a) In general If one or more applicable partnership interests are held by a taxpayer at any time during the taxable year, the excess (if any) of— (1) the taxpayer’s net long-term capital gain with respect to such interests for such taxable year, over (2) the taxpayer’s net long-term capital gain with respect to such interests for such taxable year computed by applying paragraphs (3) and (4) of sections 1 1222 by substituting ‘‘3 years’’ for ‘‘1 year’’, shall be treated as short-term capital gain, not- withstanding section 83 or any election in effect under section 83(b). (b) Special rule To the extent provided by the Secretary, sub- section (a) shall not apply to income or gain at- tributable to any asset not held for portfolio in- vestment on behalf of third party investors. (c) Applicable partnership interest For purposes of this section— (1) In general Except as provided in this paragraph or paragraph (4), the term ‘‘applicable partner- ship interest’’ means any interest in a partner- ship which, directly or indirectly, is trans- ferred to (or is held by) the taxpayer in con- nection with the performance of substantial services by the taxpayer, or any other related person, in any applicable trade or business. The previous sentence shall not apply to an in- terest held by a person who is employed by an- other entity that is conducting a trade or business (other than an applicable trade or business) and only provides services to such other entity. (2) Applicable trade or business The term ‘‘applicable trade or business’’ means any activity conducted on a regular, continuous, and substantial basis which, re- gardless of whether the activity is conducted in one or more entities, consists, in whole or in part, of— (A) raising or returning capital, and (B) either— (i) investing in (or disposing of) specified assets (or identifying specified assets for such investing or disposition), or (ii) developing specified assets. (3) Specified asset The term ‘‘specified asset’’ means securities (as defined in section 475(c)(2) without regard to the last sentence thereof), commodities (as defined in section 475(e)(2)), real estate held for rental or investment, cash or cash equiva- lents, options or derivative contracts with re- spect to any of the foregoing, and an interest in a partnership to the extent of the partner- ship’s proportionate interest in any of the foregoing. (4) Exceptions The term ‘‘applicable partnership interest’’ shall not include— (A) any interest in a partnership directly or indirectly held by a corporation, or (B) any capital interest in the partnership which provides the taxpayer with a right to share in partnership capital commensurate with— (i) the amount of capital contributed (de- termined at the time of receipt of such partnership interest), or Page 2302 TITLE 26—INTERNAL REVENUE CODE § 1062 2 So in original. Probably should be followed by a period. (ii) the value of such interest subject to tax under section 83 upon the receipt or vesting of such interest. (5) Third party investor The term ‘‘third party investor’’ means a person who— (A) holds an interest in the partnership which does not constitute property held in connection with an applicable trade or busi- ness; and (B) is not (and has not been) actively en- gaged, and is (and was) not related to a per- son so engaged, in (directly or indirectly) providing substantial services described in paragraph (1) for such partnership or any ap- plicable trade or business. (d) Transfer of applicable partnership interest to related person (1) In general If a taxpayer transfers any applicable part- nership interest, directly or indirectly, to a person related to the taxpayer, the taxpayer shall include in gross income (as short term capital gain) the excess (if any) of— (A) so much of the taxpayer’s long-term capital gains with respect to such interest for such taxable year attributable to the sale or exchange of any asset held for not more than 3 years as is allocable to such interest, over (B) any amount treated as short term cap- ital gain under subsection (a) with respect to the transfer of such interest. (2) Related person For purposes of this paragraph, a person is related to the taxpayer if— (A) the person is a member of the tax- payer’s family within the meaning of section 318(a)(1), or (B) the person performed a service within the current calendar year or the preceding three calendar years in any applicable trade or business in which or for which the tax- payer performed a service. (e) Reporting The Secretary shall require such reporting (at the time and in the manner prescribed by the Secretary) as is necessary to carry out the pur- poses of this section. (f) Regulations The Secretary shall issue such regulations or other guidance as is necessary or appropriate to carry out the purposes of this section 2 (Added Pub. L. 115–97, title I, § 13309(a)(2), Dec. 22, 2017, 131 Stat. 2130.) Editorial Notes PRIOR PROVISIONS A prior section 1061 was renumbered section 1062 of this title. Statutory Notes and Related Subsidiaries EFFECTIVE DATE Pub. L. 115–97, title I, § 13309(c), Dec. 22, 2017, 131 Stat. 2131, provided that: ‘‘The amendments made by this section [enacting this section and renumbering former section 1061 of this title as section 1062] shall apply to taxable years beginning after December 31, 2017.’’ § 1062. Cross references (1) For nonrecognition of gain in connection with the transfer of obsolete vessels to the Maritime Ad- ministration under chapter 573 of title 46, United States Code, see section 57307 of title 46. (2) For recognition of gain or loss in connection with the construction of new vessels, see chapter 533 of title 46, United States Code. (Aug. 16, 1954, ch. 736, 68A Stat. 311, § 1054; re- numbered § 1055, Pub. L. 86–779, § 8(b), Sept. 14, 1960, 74 Stat. 1003; renumbered § 1056, Pub. L. 88–9, § 1(b), Apr. 10, 1963, 77 Stat. 7; renumbered § 1057, Pub. L. 94–455, title II, § 212(a)(1), Oct. 4, 1976, 90 Stat. 1545; renumbered § 1058, Pub. L. 94–455, title X, § 1015(c), Oct. 4, 1976, 90 Stat. 1618; renumbered § 1059, Pub. L. 95–345, § 2(d)(1), Aug. 15, 1978, 92 Stat. 482; renumbered § 1060, Pub. L. 98–369, div. A, title I, § 53(a), July 18, 1984, 98 Stat. 565; renumbered § 1061 and amended, Pub. L. 99–514, title VI, § 641(a), title XVIII, § 1899A(27), Oct. 22, 1986, 100 Stat. 2282, 2960; Pub. L. 109–304, § 17(e)(5), Oct. 6, 2006, 120 Stat. 1708; renumbered § 1062, Pub. L. 115–97, title I, § 13309(a)(1), Dec. 22, 2017, 131 Stat. 2130.) Editorial Notes AMENDMENTS 2017—Pub. L. 115–97 renumbered section 1061 of this title as this section. 2006—Par. (1). Pub. L. 109–304, § 17(e)(5)(A), substituted ‘‘chapter 573 of title 46, United States Code, see section 57307 of title 46’’ for ‘‘section 510 of the Merchant Ma- rine Act, 1936, see subsection (e) of that section, as amended August 4, 1939 (46 U.S.C. App. 1160)’’. Par. (2). Pub. L. 109–304, § 17(e)(5)(B), substituted ‘‘chapter 533 of title 46, United States Code’’ for ‘‘sec- tion 511 of such Act, as amended (46 U.S.C. App. 1161)’’. Par. (3). Pub. L. 109–304, § 17(e)(5)(C), struck out par. (3), which read as follows: ‘‘For nonrecognition of gain in connection with vessels exchanged with the Mari- time Administration under section 8 of the Merchant Ship Sales Act of 1946, see subsection (a) of that section (50 U.S.C. App. 1741).’’ 1986—Pub. L. 99–514, § 641(a), renumbered section 1060 of this title as this section. Pars. (1), (2). Pub. L. 99–514, § 1899A(27), which directed the amendment of pars. (1) and (2) of section 1060 by substituting ‘‘46 U.S.C. App.’’ for ‘‘46 U.S.C.’’ was exe- cuted to section 1061 to reflect the probable intent of Congress in view of the renumbering of section 1060 as 1061 by section 641(a) of Pub. L. 99–514. [PART V—REPEALED] [§ 1071. Repealed. Pub. L. 104–7, § 2(a), Apr. 11, 1995, 109 Stat. 93] Section, acts Aug. 16, 1954, ch. 736, 68A Stat. 311; Sept. 2, 1958, Pub. L. 85–866, title I, § 48(a), 72 Stat. 1642; Oct. 4, 1976, Pub. L. 94–455, title XIX, §§ 1901(b)(31)(E), 1906(b)(13)(A), 90 Stat. 1800, 1834, provided for non- recognition on FCC certified sales and exchanges. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF REPEAL Pub. L. 104–7, § 2(d), Apr. 11, 1995, 109 Stat. 93, provided that: ‘‘(1) IN GENERAL.—The amendments made by this sec- tion [repealing this section and amending sections 1245 and 1250 of this title] shall apply to—