Section 707: Transactions between partner and partnership
Internal Revenue Code
§707. Transactions between partner and partnership
(1) In general
If a partner engages in a transaction with a partnership other than in his capacity as a member of such partnership, the transaction shall, except as otherwise provided in this section, be considered as occurring between the partnership and one who is not a partner.
(2) Treatment of payments to partners for property or services
Under regulations prescribed by the Secretary—
(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).
(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.
(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
For purposes of paragraphs (1) and (2) of this subsection, the ownership of a capital or profits interest in a partnership shall be determined in accordance with the rules for constructive ownership of stock provided in section 267(c) other than paragraph (3) of such section.
(c) Guaranteed payments
To the extent determined without regard to the income of the partnership, payments to a partner for services or the use of capital shall be considered as made to one who is not a member of the partnership, but only for the purposes of section 61(a) (relating to gross income) and, subject to section 263, for purposes of section 162(a) (relating to trade or business expenses).
(Aug. 16, 1954, ch. 736,
Statutory Notes and Related Subsidiaries
Effective Date of 1986 Amendment
Amendment by section 642(a)(2) of
Amendment by sections 1805(b) and 1812(c)(3)(B) of
Effective Date of 1984 Amendment
"(A) in the case of arrangements described in section 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.
"(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 obligations for which neither the partnership nor any partner is liable; and
"(D) the transferor of such property is the sole general partner of the partnership."
Effective Date of 1976 Amendment
Amendment by section 213(b)(3) of
Amendment by section 1901(b)(3)(C) of
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