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            Publication 541
            (Rev. March 2021)                                                  Contents
            Cat. No. 15071D                                                    Reminder                       
Department 
of the                                                                         Introduction                    
Treasury
Internal    Partnerships                                                       Forming a Partnership            
Revenue 
Service                                                                        Terminating a Partnership            
                                                                               Exclusion From Partnership Rules             
                                                                               Partnership Return (Form 1065)                 
                                                                               Partnership Distributions           
                                                                               Transactions Between Partnership 
                                                                               and Partners                      
                                                                               Basis of Partner's Interest          
                                                                               Disposition of Partner's Interest              11
                                                                               Tax Equity and Fiscal 
                                                                               Responsibility Act of 1982 
                                                                               (TEFRA)                                        13
                                                                               Bipartisan Budget Act of 2015 
                                                                               (BBA)                                          13
                                                                               Index                                          17

                                                                               Reminder
                                                                               Qualified  Opportunity  Investment.       If  you 
                                                                               held a qualified investment in a qualified oppor-
                                                                               tunity fund (QOF) at any time during the year, 
                                                                               you must file your return with Form 8997, Initial 
                                                                               and Annual Statement of Qualified Opportunity 
                                                                               Fund Investments, attached. See Form 8997 in-
                                                                               structions.
                                                                               Partnership representative.  Under the cen-
                                                                               tralized partnership audit regime, partnerships 
                                                                               are generally required to designate a partner-
                                                                               ship  representative.  See Role  of  Partnership 
                                                                               Representative, later.
                                                                               Electing out of the centralized partnership 
                                                                               audit regime.  A partnership can elect out of 
                                                                               the centralized partnership audit regime for a 
                                                                               tax year if the partnership is an eligible partner-
                                                                               ship that year. See Electing Out of the Central-
                                                                               ized Partnership Audit Regime, later.
                                                                               Photographs of missing children.          The Inter-
                                                                               nal Revenue Service is a proud partner with the 
                                                                               National  Center  for  Missing  &  Exploited 
                                                                               Children® (NCMEC). Photographs of missing 
                                                                               children selected by the Center may appear in 
                                                                               this publication on pages that would otherwise 
                                                                               be blank. You can help bring these children 
                                                                               home by looking at the photographs and calling 
                                                                               1-800-THE-LOST (1-800-843-5678) if you rec-
                                                                               ognize a child.

                                                                               Introduction
              Get forms and other information faster and easier at:            This publication provides supplemental federal 
              • IRS.gov (English)         • IRS.gov/Korean (한국어)               income  tax  information  for  partnerships  and 
              • IRS.gov/Spanish (Español) • IRS.gov/Russian (Pусский)          partners. It supplements the information provi-
              • IRS.gov/Chinese (中文)      • IRS.gov/Vietnamese (Tiếng Việt)    ded in the Instructions for Form 1065, U. S. Re-
                                                                               turn of Partnership Income, and the Partner's 

Mar 12, 2021

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Instructions for Schedule K-1 (Form 1065). withholdable payments that it makes to a for-
Generally, a partnership doesn't pay tax on its eign entity. See sections 1471 through 1474 of
income but “passes through” any profits or los- the Internal Revenue Code. A partnership that Forming a Partnership
ses to its partners. Partners must include part- has a duty to withhold but fails to withhold may
nership items on their tax returns. be held liable for the tax, applicable penalties, The following sections contain general informa-
For a discussion of business expenses a and interest. See section 1461 of the Internal tion about partnerships.
partnership can deduct, see Pub. 535, Busi- Revenue Code.
ness Expenses. Members of oil and gas part- For more information on withholding on non- Organizations Classified as
nerships should read about the deduction for resident aliens and foreign entities, see Pub.
depletion in chapter 9 of that publication. 515. Partnerships
For tax years beginning before 2018, certain
partnerships must have a tax matters partner Comments and suggestions. We welcome An unincorporated organization with two or
(TMP) who is also a general partner. your comments about this publication and sug- more members is generally classified as a part-
The TMP has been replaced with partner- gestions for future editions. nership for federal tax purposes if its members
ship representative for partnership tax years be- You can send us comments through carry on a trade, business, financial operation,
ginning after 2017. Each partnership must des- IRS.gov/FormComments. Or, you can write to or venture and divide its profits. However, a
ignate a partnership representative unless the the Internal Revenue Service, Tax Forms and joint undertaking merely to share expenses is
partnership has made a valid election out of the Publications, 1111 Constitution Ave. NW, not a partnership. For example, co-ownership of
centralized partnership audit regime. See Des- IR-6526, Washington, DC 20224. property maintained and rented or leased is not
ignated partnership representative in the Form Although we can’t respond individually to a partnership unless the co-owners provide
1065 instructions and Regulations section each comment received, we do appreciate your services to the tenants.
301.6223-1. feedback and will consider your comments and The rules you must use to determine
suggestions as we revise our tax forms, instruc- whether an organization is classified as a part-
Withholding on foreign partner or firm. A tions, and publications. Do not send tax ques- nership changed for organizations formed after
partnership that has foreign partners or en- tions, tax returns, or payments to the above ad- 1996.
gages in certain transactions with foreign per- dress.
sons may have one (or more) of the following Organizations formed after 1996. An organi-
obligations. Getting answers to your tax questions.
If you have a tax question not answered by this zation formed after 1996 is classified as a part-
Fixed or determinable annual or periodi publication or the How To Get Tax Help section nership for federal tax purposes if it has two or
cal (FDAP) income. A partnership may have at the end of this publication, go to the IRS In- more members and it is none of the following.
to withhold tax on distributions to a foreign part- teractive Tax Assistant page at IRS.gov/ • An organization formed under a federal or
ner or a foreign partner’s distributive share Help/ITA where you can find topics by using the state law that refers to it as incorporated or
when it earns income not effectively connected search feature or viewing the categories listed. as a corporation, body corporate, or body
with a U.S. trade or business. A partnership politic.
may also have to withhold on payments to a for- Getting tax forms, instructions, and pub • An organization formed under a state law
eign person of FDAP income not effectively lications. Visit IRS.gov/Forms to download that refers to it as a joint-stock company or
connected with a U.S. trade or business. See current and prior-year forms, instructions, and joint-stock association.
section 1441 or 1442 of the Internal Revenue publications. • An insurance company.
• Certain banks.
Code. Ordering tax forms, instructions, and • An organization wholly owned by a state,
Withholding under the Foreign Invest publications. Go to IRS.gov/OrderForms to local, or foreign government.
ment in Real Property Tax Act (FIRPTA). If a order current forms, instructions, and publica- • An organization specifically required to be
partnership acquires a U.S. real property inter- tions; call 800-829-3676 to order prior-year taxed as a corporation by the Internal Rev-
est from a foreign person or firm, the partner- forms and instructions. The IRS will process enue Code (for example, certain publicly
ship may have to withhold tax on the amount it your order for forms and publications as soon traded partnerships).
pays for the property (including cash, the fair as possible. Do not resubmit requests you’ve • Certain foreign organizations identified in
market value of other property, and any as- already sent us. You can get forms and publica- section 301.7701-2(b)(8) of the regula-
sumed liability). See section 1445 of the Internal tions faster online. tions.
Revenue Code. • A tax-exempt organization.
Withholding on foreign partner’s effec Useful Items • A real estate investment trust.
tively connected taxable income (ECTI). If a You may want to see: • An organization classified as a trust under
partnership has income effectively connected section 301.7701-4 of the regulations or
with a trade or business in the United States (in- Publication otherwise subject to special treatment un-
der the Internal Revenue Code.
cluding gain on the disposition of a U.S. real 334 334 Tax Guide for Small Business • Any other organization that elects to be
property interest), it must withhold on the ECTI
allocable to its foreign partners. See section 505 505 Tax Withholding and Estimated Tax classified as a corporation by filing Form
8832.
1446(a) of the Internal Revenue Code. 515 515 Withholding of Tax on Nonresident
Withholding on foreign partner’s sale of Aliens and Foreign Entities For more information, see the Instructions for
Form 8832.
a partnership interest. A purchaser of a part- 535 535 Business Expenses
Limited liability company (LLC). An LLC
nership interest, which may include the partner- 537 537 Installment Sales is an entity formed under state law by filing arti-
ship itself, may have to withhold tax on the
amount realized by a foreign partner on the sale 538 538 Accounting Periods and Methods cles of organization as an LLC. Unlike a part-
for that partnership interest if the partnership is nership, none of the members of an LLC are
engaged in a trade or business in the United 544 544 Sales and Other Dispositions of personally liable for its debts. However, if the
States. See section 1446(f) of the Internal Rev- Assets LLC is an employer, an LLC member may be li-
enue Code. 551 551 Basis of Assets able for employer related penalties. See Pub.
15, Employer’s Tax guide (Circular E), and Pub.
Withholding under the Foreign Account 925 925 Passive Activity and At-Risk Rules 3402, Taxation of Limited Liability Companies.
Tax Compliance Act (FATCA). A partnership 946 946 How To Depreciate Property An LLC may be classified for federal income tax
may have to withhold tax on distributions to a purposes as either a partnership, a corporation,
foreign partner of a foreign partner’s distributive See How To Get Tax Help at the end of this or an entity disregarded as an entity separate
share when it earns withholdable payments. A publication for information about getting from its owner by applying the rules in Regula-
partnership may also have to withhold on publications and forms. tions section 301.7701-3. See Form 8832 and
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section 301.7701-3 of the regulations for more Partnership Interests Held in • Interest in, or derivative financial instru-
details. Connection With Performance of ment in, any such security or any currency
A domestic LLC with at least two mem- Services (regardless of whether Internal Revenue
Code section 1256 applies to the contract).
TIP bers that doesn't file Form 8832 is clas- • Position that is not such a security and is a
sified as a partnership for federal in- For tax years beginning after 2017, to get
come tax purposes. long-term capital gain treatment for certain hedge with respect to such a security and
gains attributable to “applicable partnership in- is clearly identified.
terests,” the required asset holding period is
Organizations formed before 1997. An or- greater than 3 years. Under section 1061 of the Business Owned and Operated by
ganization formed before 1997 and classified Internal Revenue Code, the amount of the tax- Spouses
as a partnership under the old rules will gener- payer’s net long-term capital gain with respect
ally continue to be classified as a partnership as to applicable partnership interests for the tax If spouses carry on a business together and
long as the organization has at least two mem- year that exceeds the amount of such gain fig- share in the profits and losses, they may be
bers and doesn't elect to be classified as a cor- ured as if a 3-year (not 1-year) holding period partners whether or not they have a formal part-
poration by filing Form 8832. applies is treated as short-term capital gain. Net nership agreement. If so, they should report in-
long-term capital gain is the net of long-term come or loss from the business on Form 1065.
Community property. Spouses who own a capital gain over long-term capital loss. They should not report the income on a Sched-
qualified entity (defined below) can choose to ule C (Form 1040) in the name of one spouse
classify the entity as a partnership for federal Applicable partnership interest. An applica- as a sole proprietor. However, the spouses can
tax purposes by filing the appropriate partner- ble partnership interest is any interest in a part- elect not to treat the joint venture as a partner-
ship tax returns. They can choose to classify nership that, directly or indirectly, is transferred ship by making a qualified joint venture election.
the entity as a sole proprietorship by filing a to (or is held by) the taxpayer in connection with
Schedule C (Form 1040) listing one spouse as the performance of substantial services by the
the sole proprietor. A change in reporting posi- taxpayer, or any other related person, in any Qualified Joint Venture Election
tion will be treated for federal tax purposes as a “applicable trade or business.” The special re-
conversion of the entity. characterization rule applies to: A "qualified joint venture," whose only members
A qualified entity is a business entity that are spouses filing a joint return, can elect not to
meets all the following requirements. 1. Capital gains recognized by a partner from be treated as a partnership for federal tax pur-
• The business entity is wholly owned by the sale or exchange of an applicable part- poses. A qualified joint venture conducts a
spouses as community property under the nership interest under Internal Revenue trade or business where the only members of
laws of a state, a foreign country, or a pos- Code sections 741(a) and 731(a); and the joint venture are spouses filing jointly; both
session of the United States. 2. Capital gains recognized by a partnership, spouses elect not to be treated as a partner-
• No person other than one or both spouses allocated to a partner with respect to an ship; both spouses materially participate in the
would be considered an owner for federal applicable partnership interest. trade or business (see Passive Activity Limita-
tax purposes. tions in the Instructions for Form 1065 for a defi-
• The business entity is not treated as a cor- Applicable trade or business. An applicable nition of material participation); and the busi-
poration. trade or business means any activity conducted ness is co-owned by both spouses and is not
For more information about community on a regular, continuous, and substantial basis held in the name of a state law entity such as a
property, see Pub. 555, Community Property. (regardless of whether the activity is conducted partnership or LLC.
Pub. 555 discusses the community property through one or more entities) which consists in
laws of Arizona, California, Idaho, Louisiana, whole or in part of: Under this election, a qualified joint venture
Nevada, New Mexico, Texas, Washington, and • Raising or returning capital, and either: conducted by spouses who file a joint return is
Wisconsin. • Investing in or disposing of “specific as- not treated as a partnership for federal tax pur-
sets” (or identifying specified assets for in- poses and therefore doesn't have a Form 1065
vesting or disposition), or filing requirement. All items of income, gain, de-
Partnership Interests Created by • Developing specified assets. duction, loss, and credit are divided between
Gift the spouses based on their respective interests
Specified assets. Specified assets are: in the venture. Each spouse takes into account
Gift of capital interest. If a family member (or • Securities (as defined in Internal Revenue his or her respective share of these items as a
any other person) receives a gift of a capital in- Code section 475(c)(2), under rules for sole proprietor. Each spouse would account for
terest in a partnership in which capital is a ma- mark-to-market accounting for securities his or her respective share on the appropriate
terial income-producing factor, the donee's dis- dealers), form, such as Schedule C (Form 1040). For
tributive share of partnership income is subject • Commodities (as defined under rules for purposes of determining net earnings from
to both of the following restrictions. mark-to-market accounting for commodi- self-employment, each spouse's share of in-
• It must be figured by reducing the partner- ties dealers in Internal Revenue Code sec- come or loss from a qualified joint venture is
ship income by reasonable compensation tion 475(e)(2)), taken into account just as it is for federal income
for services the donor renders to the part- • Real estate held for rental or investment, tax purposes (that is, based on their respective
nership. • Options or derivative contracts with re- interests in the venture).
• The donee's distributive share of partner- spect to such securities,
ship income attributable to donated capital • Cash or cash equivalents, or If the spouses do not make the election to
must not be proportionately greater than • An interest in a partnership to the extent of treat their respective interests in the joint ven-
the donor's distributive share attributable the partnership’s proportionate interest in ture as sole proprietorships, each spouse
to the donor's capital. the foregoing. should carry his or her share of the partnership
income or loss from Schedule K-1 (Form 1065)
Purchase considered gift. For purposes of Security. A security for this purpose means to their joint or separate Form(s) 1040. Each
determining a partner's distributive share, an in- any of the following. spouse should include his or her respective
terest purchased by one family member from • Share of corporate stock. share of self-employment income on a separate
another family member is considered a gift from • Partnership interest or beneficial owner- Schedule SE (Form 1040), Self-Employment
the seller. The fair market value of the pur- ship interest in a widely held or publicly tra- Tax.
chased interest is considered donated capital. ded partnership or trust.
For this purpose, members of a family include • Note, bond, debenture, or other evidence This generally doesn't increase the total tax
only spouses, ancestors, and lineal descend- of indebtedness. on the return, but it does give each spouse
ants (or a trust for the primary benefit of those • Interest rate, currency, or equity notional credit for social security earnings on which re-
persons). principal contract. tirement benefits are based. However, this may
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not be true if either spouse exceeds the social gain on the excess. For more information, see his or her share of the property produced
security tax limitation. Effect of Partnership Liabilities under Basis of or extracted for the time being for his or her
Partner's Interest, later. account, but not for a period of time in ex-
For more information on qualified joint ven- The same rules apply if an LLC classified as cess of the minimum needs of the industry,
tures, go to IRS.gov/QJV. a partnership is converted into a partnership. and in no event for more than 1 year.
However, this exclusion doesn't apply to an un-
Partnership Agreement Electronic Filing incorporated organization one of whose princi-
pal purposes is cycling, manufacturing, or pro-
The partnership agreement includes the original Certain partnerships with more than 100 part- cessing for persons who are not members of
agreement and any modifications. The modifi- ners are required to file Form 1065, Schedules the organization.
cations must be agreed to by all partners or K-1, and related forms and schedules electroni-
adopted in any other manner provided by the cally. For tax years beginning after July 1, 2019, Electing the exclusion. An eligible organiza-
partnership agreement. The agreement or mod- a religious or apostolic organization exempt tion that wishes to be excluded from the part-
ifications can be oral or written. from income tax under section 501(d) must file nership rules must make the election not later
Form 1065 electronically. Other partnerships than the time for filing the partnership return for
Partners can modify the partnership agree- generally have the option to file electronically. the first tax year for which exclusion is desired.
ment for a particular tax year after the close of For details about electronic filing, see the In- This filing date includes any extension of time.
the year but not later than the date for filing the structions for Form 1065. See Regulations section 1.761-2(b) for the pro-
partnership return for that year. This filing date cedures to follow.
doesn't include any extension of time.
If the partnership agreement or any modifi- Exclusion From
cation is silent on any matter, the provisions of Partnership Return
local law are treated as part of the agreement. Partnership Rules
(Form 1065)
Certain partnerships that do not actively con-
duct a business can choose to be completely or Every partnership that engages in a trade or
Terminating a partially excluded from being treated as partner- business or has gross income must file an infor-
Partnership ships for federal income tax purposes. All the mation return on Form 1065 showing its in-
partners must agree to make the choice, and come, deductions, and other required informa-
A partnership terminates when all its operations the partners must be able to figure their own tion. The partnership return must show the
are discontinued and no part of any business, fi- taxable income without figuring the partner- names and addresses of each partner and each
nancial operation, or venture is continued by ship's income. However, the partners are not partner's distributive share of taxable income.
any of its partners in a partnership. exempt from the rule that limits a partner's dis- The return must be signed by a partner. If an
tributive share of partnership loss to the adjus- LLC is treated as a partnership, it must file Form
See section 1.708-1(b)(1) of the regulations ted basis of the partner's partnership interest. 1065 and one of its members must sign the re-
for more information on the termination of a Nor are they exempt from the requirement of a turn.
partnership. For special rules that apply to a business purpose for adopting a tax year for the A partnership is not considered to engage in
merger, consolidation, or division of a partner- partnership that differs from its required tax a trade or business, and is not required to file a
ship, see sections 1.708-1(c) and 1.708-1(d) of year. Form 1065, for any tax year in which it neither
the regulations.
receives income nor pays or incurs any expen-
Investing partnership. An investing partner- ses treated as deductions or credits for federal
Date of termination. The partnership's tax ship can be excluded if the participants in the income tax purposes.
year ends on the date of termination. The date joint purchase, retention, sale, or exchange of
of termination is the date the partnership com- investment property meet all the following re- See the Instructions for Form 1065 for more
pletes the winding up of its affairs. quirements. information about who must file Form 1065.
• They own the property as co-owners.
Short period return. If a partnership is termi- • They reserve the right separately to take or
nated before the end of what would otherwise dispose of their shares of any property ac- Partnership
be its tax year, Form 1065 must be filed for the quired or retained.
short period, which is the period from the begin- • They do not actively conduct business or Distributions
ning of the tax year through the date of termina- irrevocably authorize some person acting
tion. The return is due the 15 day of the 3th rd in a representative capacity to purchase, Partnership distributions include the following.
month following the date of termination. See sell, or exchange the investment property. • A withdrawal by a partner in anticipation of
Partnership Return (Form 1065), later, for infor- Each separate participant can delegate au- the current year's earnings.
mation about filing Form 1065. thority to purchase, sell, or exchange his or • A distribution of the current year's or prior
her share of the investment property for the years' earnings not needed for working
Conversion of partnership into LLC. The time being for his or her account, but not capital.
conversion of a partnership into an LLC classi- for a period of more than a year. • A complete or partial liquidation of a part-
fied as a partnership for federal tax purposes ner's interest.
doesn't terminate the partnership. The conver- Operating agreement partnership. An oper- • A distribution to all partners in a complete
sion is not a sale, exchange, or liquidation of ating agreement partnership group can be ex- liquidation of the partnership.
any partnership interest; the partnership's tax cluded if the participants in the joint production,
year doesn't close; and the LLC can continue to extraction, or use of property meet all the fol- A partnership distribution is not taken into
use the partnership's taxpayer identification lowing requirements. account in determining the partner's distributive
number. • They own the property as co-owners, ei- share of partnership income or loss. If any gain
However, the conversion may change some ther in fee or under lease or other form of or loss from the distribution is recognized by the
of the partners' bases in their partnership inter- contract granting exclusive operating partner, it must be reported on his or her return
ests if the partnership has recourse liabilities rights. for the tax year in which the distribution is re-
that become nonrecourse liabilities. Because • They reserve the right separately to take in ceived. Money or property withdrawn by a part-
the partners share recourse and nonrecourse li- kind or dispose of their shares of any prop- ner in anticipation of the current year's earnings
abilities differently, their bases must be adjus- erty produced, extracted, or used. is treated as a distribution received on the last
ted to reflect the new sharing ratios. If a de- • They don't jointly sell services or the prop- day of the partnership's tax year.
crease in a partner's share of liabilities exceeds erty produced or extracted. Each separate
the partner's basis, he or she must recognize participant can delegate authority to sell
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Effect on partner's basis. A partner's adjus- Example. The adjusted basis of Jo's part- debt exceeds its fair market value when distrib-
ted basis in his or her partnership interest is de- nership interest is $14,000. She receives a dis- uted, the partner may have to include the ex-
creased (but not below zero) by the money and tribution of $8,000 cash and land that has an cess amount in income as canceled debt.
adjusted basis of property distributed to the adjusted basis of $2,000 and a fair market value Similarly, a deduction may be available to a
partner. See Adjusted Basis under Basis of of $3,000. Because the cash received doesn't corporate partner if the fair market value of the
Partner's Interest, later. exceed the basis of her partnership interest, Jo debt at the time of distribution exceeds its ad-
doesn't recognize any gain on the distribution. justed issue price.
Effect on partnership. A partnership gener- Any gain on the land will be recognized when
ally doesn't recognize any gain or loss because she sells or otherwise disposes of it. The distri- Net precontribution gain. A partner generally
of distributions it makes to partners. The part- bution decreases the adjusted basis of Jo's must recognize gain on the distribution of prop-
nership may be able to elect to adjust the basis partnership interest to $4,000 [$14,000 − erty (other than money) if the partner contrib-
of its undistributed property. ($8,000 + $2,000)]. uted appreciated property to the partnership
during the 7-year period before the distribution.
Certain distributions treated as a sale or Qualified Opportunity Investment. If you
exchange. When a partnership distributes the held a qualified investment in a qualified oppor- The gain recognized is the lesser of the fol-
following items, the distribution may be treated tunity fund (QOF) at any time during the year, lowing amounts.
as a sale or exchange of property rather than a you must file your return with Form 8997, Initial 1. The excess of:
distribution. and Annual Statement of Qualified Opportunity a. The fair market value of the property
• Unrealized receivables or substantially ap- Fund Investments, attached. See Form 8997 in- received in the distribution, over
preciated inventory items distributed in ex- structions.
change for any part of the partner's interest b. The adjusted basis of the partner's in-
in other partnership property, including Marketable securities treated as money. terest in the partnership immediately
money. Generally, a marketable security distributed to a before the distribution, reduced (but
• Other property (including money) distrib- partner is treated as money in determining not below zero) by any money re-
uted in exchange for any part of a partner's whether gain is recognized on the distribution. ceived in the distribution.
interest in unrealized receivables or sub- This treatment, however, doesn't generally ap- 2. The “net precontribution gain” of the part-
stantially appreciated inventory items. ply if that partner contributed the security to the ner. This is the net gain the partner would
partnership or an investment partnership made
See Payments for Unrealized Receivables the distribution to an eligible partner. recognize if all the property contributed by
the partner within 7 years of the distribu-
and Inventory Items under Disposition of Part- The amount treated as money is the securi- tion, and held by the partnership immedi-
ner's Interest, later. ty's fair market value when distributed, reduced ately before the distribution, were distrib-
This treatment doesn't apply to the following (but not below zero) by the excess (if any) of: uted to another partner, other than a
distributions.
• A distribution of property to the partner 1. The partner's distributive share of the gain partner who owns more than 50% of the
who contributed the property to the part- that would be recognized had the partner- partnership. For information about the dis-
nership. ship sold all its marketable securities at tribution of contributed property to another
• Payments made to a retiring partner or their fair market value immediately before partner, see Contribution of Property un-
successor in interest of a deceased part- the transaction resulting in the distribution, der Transactions Between Partnership
ner that are the partner's distributive share over and Partners, later.
of partnership income or guaranteed pay- 2. The partner's distributive share of the gain The character of the gain is determined by
ments. that would be recognized had the partner- reference to the character of the net precontri-
Substantially appreciated inventory ship sold all such securities it still held af- bution gain. This gain is in addition to any gain
items. Inventory items of the partnership are ter the distribution at the fair market value the partner must recognize if the money distrib-
considered to have appreciated substantially in in (1). uted is more than his or her basis in the partner-
ship.
value if, at the time of the distribution, their total For more information, including the defini-
fair market value is more than 120% of the part- tion of marketable securities, see section 731(c) For these rules, the term “money” includes
nership's adjusted basis for the property. How- of the Internal Revenue Code. marketable securities treated as money, as dis-
ever, if a principal purpose for acquiring inven- cussed earlier under Marketable securities trea-
tory property is to avoid ordinary income Loss on distribution. A partner doesn't recog- ted as money.
treatment by reducing the appreciation to less nize loss on a partnership distribution unless all Effect on basis. The adjusted basis of the
than 120%, that property is excluded. the following requirements are met. partner's interest in the partnership is increased
• The adjusted basis of the partner's interest
Partner's Gain or Loss in the partnership exceeds the distribution. by any net precontribution gain recognized by
• The partner's entire interest in the partner- the partner. Other than for purposes of deter-
ship is liquidated. mining the gain, the increase is treated as oc-
A partner generally recognizes gain on a part- • The distribution is in money, unrealized re- curring immediately before the distribution. See
nership distribution only to the extent any ceivables, or inventory items. Basis of Partner's Interest, later.
money (and marketable securities treated as The partnership must adjust its basis in any
money) included in the distribution exceeds the There are exceptions to these general rules. property the partner contributed within 7 years
adjusted basis of the partner's interest in the See the following discussions. Also, see Liqui- of the distribution to reflect any gain that partner
partnership. Any gain recognized is generally dation at Partner's Retirement or Death under recognizes under this rule.
treated as capital gain from the sale of the part- Disposition of Partner's Interest, later.
nership interest on the date of the distribution. If Exceptions. Any part of a distribution that
partnership property (other than marketable se- Distribution of partner's debt. If a partner- is property the partner previously contributed to
curities treated as money) is distributed to a ship acquires a partner's debt and extinguishes the partnership is not taken into account in de-
partner, he or she generally doesn't recognize the debt by distributing it to the partner, the termining the amount of the excess distribution
any gain until the sale or other disposition of the partner will recognize capital gain or loss to the or the partner's net precontribution gain. For this
property. extent the fair market value of the debt differs purpose, the partner's previously contributed
from the basis of the debt (determined under property doesn't include a contributed interest
For exceptions to these rules, see Distribu- the rules discussed in Partner's Basis for Dis- in an entity to the extent its value is due to prop-
tion of partner's debt and Net precontribution tributed Property, later). erty contributed to the entity after the interest
gain, later. Also, see Payments for Unrealized The partner is treated as having satisfied the was contributed to the partnership.
Receivables and Inventory Items under Disposi- debt for its fair market value. If the issue price Recognition of gain under this rule also
tion of Partner's Interest, later. (adjusted for any premium or discount) of the doesn't apply to a distribution of unrealized re-
ceivables or substantially appreciated inventory
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items if the distribution is treated as a sale or sis, decrease the assigned bases by the Distributions before August 6, 1997. For
exchange, as discussed earlier under Certain amount of the excess. property distributed before August 6, 1997, allo-
distributions treated as a sale or exchange. cate the basis using the following rules.
Allocating a basis increase. Allocate any
basis increase required in rule (2) above first to 1. Allocate the basis first to unrealized re-
Partner's Basis for properties with unrealized appreciation to the ceivables and inventory items included in
Distributed Property extent of the unrealized appreciation. If the ba- the distribution to the extent of the partner-
sis increase is less than the total unrealized ap- ship's adjusted basis in those items. If the
Unless there is a complete liquidation of a part- preciation, allocate it among those properties in partnership's adjusted basis in those items
ner's interest, the basis of property (other than proportion to their respective amounts of unre- exceeded the allocable basis, allocate the
money) distributed to the partner by a partner- alized appreciation. Allocate any remaining ba- basis among the items in proportion to
ship is its adjusted basis to the partnership im- sis increase among all the properties in propor- their adjusted bases to the partnership.
mediately before the distribution. However, the tion to their respective fair market values. 2. Allocate any remaining basis to other dis-
basis of the property to the partner cannot be tributed properties in proportion to their
more than the adjusted basis of his or her inter- Example. Eun's basis in her partnership in- adjusted bases to the partnership.
est in the partnership reduced by any money re- terest is $55,000. In a distribution in liquidation
ceived in the same transaction. of her entire interest, she receives properties A Partner's interest more than partnership
and B, neither of which is inventory or unreal- basis. If the basis of a partner's interest to be
Example 1. The adjusted basis of Emily's ized receivables. Property A has an adjusted divided in a complete liquidation of the partner's
partnership interest is $30,000. She receives a basis to the partnership of $5,000 and a fair interest is more than the partnership's adjusted
distribution of property that has an adjusted ba- market value of $40,000. Property B has an ad- basis for the unrealized receivables and inven-
sis of $20,000 to the partnership and $4,000 in justed basis to the partnership of $10,000 and a tory items distributed, and if no other property is
cash. Her basis for the property is $20,000. fair market value of $10,000. distributed to which the partner can apply the
To figure her basis in each property, Eun remaining basis, the partner has a capital loss
Example 2. The adjusted basis of Steve's first assigns bases of $5,000 to property A and to the extent of the remaining basis of the part-
partnership interest is $10,000. He receives a $10,000 to property B (their adjusted bases to nership interest.
distribution of $4,000 cash and property that the partnership). This leaves a $40,000 basis
has an adjusted basis to the partnership of increase (the $55,000 allocable basis minus the Special adjustment to basis. A partner who
$8,000. His basis for the distributed property is $15,000 total of the assigned bases). She first acquired any part of his or her partnership inter-
limited to $6,000 ($10,000 − $4,000, the cash allocates $35,000 to property A (its unrealized est in a sale or exchange or upon the death of
he receives). appreciation). The remaining $5,000 is alloca- another partner may be able to choose a spe-
ted between the properties based on their fair cial basis adjustment for property distributed by
Complete liquidation of partner's interest. market values. $4,000 ($40,000/$50,000) is al- the partnership. To choose the special adjust-
The basis of property received in complete liqui- located to property A and $1,000 ment, the partner must have received the distri-
dation of a partner's interest is the adjusted ba- ($10,000/$50,000) is allocated to property B. bution within 2 years after acquiring the partner-
sis of the partner's interest in the partnership re- Eun's basis in property A is $44,000 ($5,000 + ship interest. Also, the partnership must not
duced by any money distributed to the partner $35,000 + $4,000) and her basis in property B have chosen the optional adjustment to basis
in the same transaction. is $11,000 ($10,000 + $1,000). when the partner acquired the partnership inter-
est.
Partner's holding period. A partner's holding Allocating a basis decrease. Use the fol- If a partner chooses this special basis ad-
period for property distributed to the partner in- lowing rules to allocate any basis decrease re- justment, the partner's basis for the property
cludes the period the property was held by the quired in rule (1) or rule (2), earlier. distributed is the same as it would have been if
partnership. If the property was contributed to 1. Allocate the basis decrease first to items the partnership had chosen the optional adjust-
the partnership by a partner, then the period it with unrealized depreciation to the extent ment to basis. However, this assigned basis is
was held by that partner is also included. of the unrealized depreciation. If the basis not reduced by any depletion or depreciation
decrease is less than the total unrealized that would have been allowed or allowable if the
Basis divided among properties. If the basis depreciation, allocate it among those partnership had previously chosen the optional
of property received is the adjusted basis of the items in proportion to their respective adjustment.
partner's interest in the partnership (reduced by amounts of unrealized depreciation. The choice must be made with the partner's
money received in the same transaction), it tax return for the year of the distribution if the
must be divided among the properties distrib- 2. Allocate any remaining basis decrease
uted to the partner. For property distributed af- among all the items in proportion to their distribution includes any property subject to de-
ter August 5, 1997, allocate the basis using the respective assigned basis amounts (as preciation, depletion, or amortization. If the
following rules. decreased in (1)). choice doesn't have to be made for the distribu-
tion year, it must be made with the return for the
1. Allocate the basis first to unrealized re- Example. Armando's basis in his partner- first year in which the basis of the distributed
ceivables and inventory items included in ship interest is $20,000. In a distribution in liqui- property is pertinent in determining the partner's
the distribution by assigning a basis to dation of his entire interest, he receives proper- income tax.
each item equal to the partnership's adjus- ties C and D, neither of which is inventory or A partner choosing this special basis adjust-
ted basis in the item immediately before unrealized receivables. Property C has an ad- ment must attach a statement to his or her tax
the distribution. If the total of these as- justed basis to the partnership of $15,000 and a return that the partner chooses under section
signed bases exceeds the allocable basis, fair market value of $15,000. Property D has an 732(d) of the Internal Revenue Code to adjust
decrease the assigned bases by the adjusted basis to the partnership of $15,000 the basis of property received in a distribution.
amount of the excess. and a fair market value of $5,000. The statement must show the computation of
2. Allocate any remaining basis to properties To figure his basis in each property, Ar- the special basis adjustment for the property
other than unrealized receivables and in- mando first assigns bases of $15,000 to prop- distributed and list the properties to which the
ventory items by assigning a basis to each erty C and $15,000 to property D (their adjusted adjustment has been allocated.
property equal to the partnership's adjus- bases to the partnership). This leaves a
ted basis in the property immediately be- $10,000 basis decrease (the $30,000 total of Example. Chin Ho purchased a 25% inter-
fore the distribution. If the allocable basis the assigned bases minus the $20,000 alloca- est in X partnership for $17,000 cash. At the
exceeds the total of these assigned ble basis). He allocates the entire $10,000 to time of the purchase, the partnership owned in-
bases, increase the assigned bases by the property D (its unrealized depreciation). Arman- ventory having a basis to the partnership of
amount of the excess. If the total of these do's basis in property C is $15,000 and his ba- $14,000 and a fair market value of $16,000.
assigned bases exceeds the allocable ba- sis in property D is $5,000 ($15,000 − $10,000).

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Thus, $4,000 of the $17,000 he paid was attrib- ner’s Gain or Loss, earlier. The basis increase Generally, organizational and syndication ex-
utable to his share of inventory with a basis to is allocated among the securities in proportion penses are not deductible by the partnership.
the partnership of $3,500. to their respective amounts of unrealized appre- However, a partnership can elect to deduct a
Within 2 years after acquiring his interest, ciation before the basis increase. portion of its organizational expenses and am-
Chin Ho withdrew from the partnership and for ortize the remaining expenses (see Business
his entire interest received cash of $1,500, in- start-up and organizational costs in the
ventory with a basis to the partnership of Transactions Between Instructions for Form 1065). Organizational ex-
$3,500, and other property with a basis of penses (if the election is not made) and syndi-
$6,000. The value of the inventory received was Partnership and cation expenses paid to partners must be repor-
25% of the value of all partnership inventory. (It ted on the partners' Schedules K-1 as
is immaterial whether the inventory he received Partners guaranteed payments.
was on hand when he acquired his interest.)
Since the partnership from which Chin Ho For certain transactions between a partner and Minimum payment. If a partner is to receive a
withdrew didn't make the optional adjustment to his or her partnership, the partner is treated as minimum payment from the partnership, the
basis, he chose to adjust the basis of the inven- not being a member of the partnership. These guaranteed payment is the amount by which the
tory received. His share of the partnership's ba- transactions include the following. minimum payment is more than the partner's
sis for the inventory is increased by $500 (25% 1. Performing services for, or transferring distributive share of the partnership income be-
of the $2,000 difference between the $16,000 property to, a partnership if: fore taking into account the guaranteed pay-
fair market value of the inventory and its ment.
$14,000 basis to the partnership at the time he a. There is a related allocation and distri-
acquired his interest). The adjustment applies bution to a partner; and Example. Under a partnership agreement,
only for purposes of determining his new basis b. The entire transaction, when viewed Divya is to receive 30% of the partnership in-
in the inventory, and not for purposes of part- together, is properly characterized as come, but not less than $8,000. The partnership
nership gain or loss on disposition. occurring between the partnership has net income of $20,000. Divya's share, with-
The total to be allocated among the proper- and a partner not acting in the ca- out regard to the minimum guarantee, is $6,000
ties Chin Ho received in the distribution is pacity of a partner. (30% × $20,000). The guaranteed payment that
$15,500 ($17,000 basis of his interest − $1,500 can be deducted by the partnership is $2,000
cash received). His basis in the inventory items 2. Transferring money or other property to a ($8,000 − $6,000). Divya's income from the
is $4,000 ($3,500 partnership basis + $500 spe- partnership if: partnership is $8,000, and the remaining
cial adjustment). The remaining $11,500 is allo- a. There is a related transfer of money or $12,000 of partnership income will be reported
cated to his new basis for the other property he other property by the partnership to by the other partners in proportion to their
received. the contributing partner or another shares under the partnership agreement.
Mandatory adjustment. A partner doesn't partner, and If the partnership net income had been
$30,000, there would have been no guaranteed
always have a choice of making this special ad- b. The transfers together are properly payment since her share, without regard to the
justment to basis. The special adjustment to ba- characterized as a sale or exchange guarantee, would have been greater than the
sis must be made for a distribution of property of property. guarantee.
(whether or not within 2 years after the partner-
ship interest was acquired) if all the following Payments by accrual basis partnership to Self-employed health insurance premiums.
conditions existed when the partner received cash basis partner. A partnership that uses Premiums for health insurance paid by a part-
the partnership interest. an accrual method of accounting cannot deduct nership on behalf of a partner, for services as a
• The fair market value of all partnership any business expense owed to a cash basis partner, are treated as guaranteed payments.
property (other than money) was more partner until the amount is paid. However, this The partnership can deduct the payments as a
than 110% of its adjusted basis to the part- rule doesn't apply to guaranteed payments business expense, and the partner must include
nership. made to a partner, which are generally deducti- them in gross income. However, if the partner-
• If there had been a liquidation of the part- ble when accrued. ship accounts for insurance paid for a partner
ner's interest immediately after it was ac- as a reduction in distributions to the partner, the
quired, an allocation of the basis of that in- partnership cannot deduct the premiums.
terest under the general rules (discussed Guaranteed Payments
A partner who qualifies can deduct 100% of
earlier under Basis divided among proper- Guaranteed payments are those made by a the health insurance premiums paid by the part-
ties) would have decreased the basis of partnership to a partner that are determined nership on his or her behalf as an adjustment to
property that couldn't be depreciated, de- without regard to the partnership's income. A income. The partner cannot deduct the premi-
pleted, or amortized and increased the ba- partnership treats guaranteed payments for ums for any calendar month, or part of a month,
sis of property that could be. services, or for the use of capital, as if they in which the partner is eligible to participate in
• The optional basis adjustment, if it had were made to a person who is not a partner. any subsidized health plan maintained by any
been chosen by the partnership, would This treatment is for purposes of determining employer of the partner, the partner's spouse,
have changed the partner's basis for the gross income and deductible business expen- the partner's dependents, or any children under
property actually distributed. ses only. For other tax purposes, guaranteed age 27 who are not dependents. For more infor-
Required statement. Generally, if a partner payments are treated as a partner's distributive mation on the self-employed health insurance
chooses a special basis adjustment and notifies share of ordinary income. Guaranteed pay- deduction, see chapter 6 in Pub. 535.
the partnership, or if the partnership makes a ments are not subject to income tax withhold-
distribution for which the special basis adjust- ing. Including payments in partner's income.
Guaranteed payments are included in income in
ment is mandatory, the partnership must pro- The partnership generally deducts guaran- the partner's tax year in which the partnership's
vide a statement to the partner. The statement teed payments on Form 1065, line 10, as a tax year ends.
must provide information necessary for the part- business expense. They are also listed on
ner to figure the special basis adjustment. Schedules K and K-1 of the partnership return. Example 1. Under the terms of a partner-
The individual partner reports guaranteed pay- ship agreement, Erica is entitled to a fixed an-
Marketable securities. A partner's basis in ments on Schedule E (Form 1040) as ordinary nual payment of $10,000 without regard to the
marketable securities received in a partnership income, along with his or her distributive share income of the partnership. Her distributive
distribution, as determined in the preceding dis- of the partnership's other ordinary income. share of the partnership income is 10%. The
cussions, is increased by any gain recognized partnership has $50,000 of ordinary income af-
by treating the securities as money. See Mar- Guaranteed payments made to partners for ter deducting the guaranteed payment. She
ketable securities treated as money under Part- organizing the partnership or syndicating inter- must include ordinary income of $15,000
ests in the partnership are capital expenses.
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($10,000 guaranteed payment + $5,000 1. An interest directly or indirectly owned by, However, if the contribution and distribution oc-
($50,000 × 10%) distributive share) on her indi- or for, a corporation, partnership, estate, cur within 2 years of each other, the transfers
vidual income tax return for her tax year in or trust is considered to be owned propor- are presumed to be a sale unless the facts
which the partnership's tax year ends. tionately by, or for, its shareholders, part- clearly indicate that the transfers are not a sale.
ners, or beneficiaries. If the contribution and distribution occur more
Example 2. Lamont is a calendar year tax- than 2 years apart, the transfers are presumed
payer who is a partner in a partnership. The 2. An individual is considered to own the in- not to be a sale unless the facts clearly indicate
partnership uses a fiscal year that ended Janu- terest directly or indirectly owned by, or that the transfers are a sale.
ary 31, 2019. Lamont received guaranteed pay- for, the individual's family. For this rule,
ments from the partnership from February 1, “family” includes only brothers, sisters, Form 8275 required. A partner must at-
2018, until December 31, 2018. He must in- half-brothers, half-sisters, spouses, an- tach Form 8275, Disclosure Statement, (or
clude these guaranteed payments in income for cestors, and lineal descendants. other statement) to his or her return if the part-
2019 and report them on his 2019 income tax 3. If a person is considered to own an inter- ner contributes property to a partnership and,
return. est using rule (1), that person (the “con- within 2 years (before or after the contribution),
structive owner”) is treated as if actually the partnership transfers money or other con-
Payments resulting in loss. If guaranteed owning that interest when rules (1) and (2) sideration to the partner. For exceptions to this
payments to a partner result in a partnership are applied. However, if a person is con- requirement, see section 1.707-3(c)(2) of the
loss in which the partner shares, the partner sidered to own an interest using rule (2), regulations.
must report the full amount of the guaranteed that person is not treated as actually own- A partnership must attach Form 8275 (or
payments as ordinary income. The partner sep- ing that interest in reapplying rule (2) to other statement) to its return if it distributes
arately takes into account his or her distributive make another person the constructive property to a partner, and, within 2 years (be-
share of the partnership loss, to the extent of owner. fore or after the distribution), the partner trans-
the adjusted basis of the partner's partnership fers money or other consideration to the part-
interest. Example. Individuals A and B and Trust T nership.
are equal partners in Partnership ABT. A's hus- Form 8275 must include the following infor-
Sale or Exchange band, AH, is the sole beneficiary of Trust T. mation.
of Property Trust T's partnership interest will be attributed • A caption identifying the statement as a
to AH only for the purpose of further attributing disclosure under section 707 of the Internal
Special rules apply to a sale or exchange of the interest to A. As a result, A is a Revenue Code.
property between a partnership and certain per- more-than-50% partner. This means that any • A description of the transferred property or
sons. deduction for losses on transactions between money, including its value.
her and ABT will not be allowed, and gain from • A description of any relevant facts in deter-
Losses. Losses will not be allowed from a sale property that in the hands of the transferee is mining if the transfers are properly viewed
or exchange of property (other than an interest not a capital asset is treated as ordinary, rather as a disguised sale. See Regulations sec-
in the partnership) directly or indirectly between than capital, gain. tion 1.707-3(b)(2) for a description of the
facts and circumstances considered in de-
a partnership and a person whose direct or indi- termining if the transfers are a disguised
rect interest in the capital or profits of the part- More information. For more information on
nership is more than 50%. these special rules, see Sales and Exchanges sale.
If the sale or exchange is between two part- Between Related Persons in chapter 2 of Pub.
nerships in which the same persons directly or 544. Contribution to partnership treated as in-
vestment company. Gain is recognized when
indirectly own more than 50% of the capital or property is contributed (in exchange for an in-
profits interests in each partnership, no deduc- Contribution of Property terest in the partnership) to a partnership that
tion of a loss is allowed. would be treated as an investment company if it
The basis of each partner's interest in the Usually, neither the partner nor the partnership were incorporated.
partnership is decreased (but not below zero) recognizes a gain or loss when property is con- A partnership is generally treated as an in-
by the partner's share of the disallowed loss. tributed to the partnership in exchange for a vestment company if over 80% of the value of
If the purchaser later sells the property, only partnership interest. This applies whether a its assets is held for investment and consists of
the gain realized that is greater than the loss not partnership is being formed or is already oper- certain readily marketable items. These items
allowed will be taxable. If any gain from the sale ating. The partnership's holding period for the include money, stocks and other equity inter-
of the property is not recognized because of property includes the partner's holding period. ests in a corporation, and interests in regulated
this rule, the basis of each partner's interest in The contribution of limited partnership inter- investment companies and real estate invest-
the partnership is increased by the partner's ests in one partnership for limited partnership ment trusts. For more information, see section
share of that gain. interests in another partnership qualifies as a 351(e)(1) of the Internal Revenue Code and the
Gains. Gains are treated as ordinary income in tax-free contribution of property to the second related regulations. Whether a partnership is
a sale or exchange of property directly or indi- partnership if the transaction is made for busi- treated as an investment company under this
rectly between a person and a partnership, or ness purposes. The exchange is not subject to test is ordinarily determined immediately after
between two partnerships, if both of the follow- the rules explained later under Disposition of the transfer of property.
ing tests are met. Partner's Interest. This rule applies to limited partnerships and
general partnerships, regardless of whether
• More than 50% of the capital or profits in- Disguised sales. A contribution of money or they are privately formed or publicly syndicated.
terest in the partnership(s) is directly or in- other property to the partnership followed by a
directly owned by the same person(s). distribution of different property from the part- Contribution to foreign partnership. A do-
• The property in the hands of the transferee nership to the partner is treated not as a contri- mestic partnership that contributed property af-
immediately after the transfer is not a capi- bution and distribution, but as a sale of prop- ter August 5, 1997, to a foreign partnership in
tal asset. Property that is not a capital as- erty, if both of the following tests are met. exchange for a partnership interest may have to
set includes accounts receivable, inven- The distribution wouldn't have been made file Form 8865, Return of U.S. Persons With
tory, stock-in-trade, and depreciable or •
but for the contribution. Respect to Certain Foreign Partnerships, if ei-
real property used in a trade or business. The partner's right to the distribution ther of the following applies.
•
More than 50% ownership. To determine if doesn't depend on the success of partner- 1. Immediately after the contribution, the
there is more than 50% ownership in partner- ship operations. partnership owned, directly, indirectly, or
ship capital or profits, the following rules apply. All facts and circumstances are considered by attribution, at least a 10% interest in the
in determining if the contribution and distribu- foreign partnership.
tion are more properly characterized as a sale.
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2. The fair market value of the property con- However, since the partnership is allowed Capital interest. A capital interest is an inter-
tributed to the foreign partnership, when only $400 per year of depreciation (10% of est that would give the holder a share of the
added to other contributions of property $4,000), no more than $400 can be allocated proceeds if the partnership's assets were sold
made to the partnership during the pre- between the partners. The entire $400 must be at fair market value and the proceeds were dis-
ceding 12-month period, is greater than allocated to Areta. tributed in a complete liquidation of the partner-
$100,000. ship. This determination generally is made at
Distribution of contributed property to an- the time of receipt of the partnership interest.
The partnership may also have to file Form other partner. If a partner contributes property The fair market value of such an interest re-
8865, even if no contributions are made during to a partnership and the partnership distributes ceived by a partner as compensation for serv-
the tax year, if it owns a 10% or more interest in the property to another partner within 7 years of ices must generally be included in the partner's
a foreign partnership at any time during the the contribution, the contributing partner must gross income in the first tax year in which the
year. See the form instructions for more infor- recognize gain or loss on the distribution. partner can transfer the interest or the interest is
mation. The recognized gain or loss is the amount not subject to a substantial risk of forfeiture. The
the contributing partner would have recognized capital interest transferred as compensation for
Basis of contributed property. If a partner if the property had been sold for its fair market services is subject to the rules for restricted
contributes property to a partnership, the part- value when it was distributed. This amount is property discussed under Employee Compen-
nership's basis for determining depreciation, the difference between the property's basis and sation in Pub. 525, Taxable and Nontaxable In-
depletion, gain, or loss for the property is the its fair market value at the time of contribution. come.
same as the partner's adjusted basis for the The character of the gain or loss will be the The fair market value of an interest in part-
property when it was contributed, increased by same as the character of the gain or loss that nership capital transferred to a partner as pay-
any gain recognized by the partner at the time would have resulted if the partnership had sold ment for services to the partnership is a guaran-
of contribution. the property to the distributee partner. Appropri- teed payment, discussed earlier under
Allocations to account for built-in gain or ate adjustments must be made to the adjusted Guaranteed Payments.
loss. The fair market value of property at the basis of the contributing partner's partnership
time it is contributed may be different from the interest and to the adjusted basis of the prop- Profits interest. A profits interest is a partner-
partner's adjusted basis. The partnership must erty distributed to reflect the recognized gain or ship interest other than a capital interest. If a
allocate among the partners any income, de- loss. person receives a profits interest for providing
services to, or for the benefit of, a partnership in
duction, gain, or loss on the property in a man- Disposition of certain contributed property. a partner capacity or in anticipation of being a
ner that will account for the difference. This rule The following rules determine the character of partner, the receipt of such an interest is not a
also applies to contributions of accounts paya- the partnership's gain or loss on a disposition of taxable event for the partner or the partnership.
ble and other accrued but unpaid items of a certain types of contributed property. However, this doesn't apply in the following sit-
cash basis partner.
The partnership can use different allocation 1. Unrealized receivables. If the property uations.
methods for different items of contributed prop- was an unrealized receivable in the hands • The profits interest relates to a substan-
erty. A single reasonable method must be con- of the contributing partner, any gain or loss tially certain and predictable stream of in-
sistently applied to each item, and the overall on its disposition by the partnership is or- come from partnership assets, such as in-
method or combination of methods must be dinary income or loss. Unrealized receiva- come from high-quality debt securities or a
reasonable. See section 1.704-3 of the regula- bles are defined later under Payments for high-quality net lease.
tions for allocation methods generally consid- Unrealized Receivables and Inventory • Within 2 years of receipt, the partner dispo-
ered reasonable. Items. When reading the definition, substi- ses of the profits interest.
If the partnership sells contributed property tute “partner” for “partnership.” • The profits interest is a limited partnership
interest in a publicly traded partnership.
and recognizes gain or loss, built-in gain or loss 2. Inventory items. If the property was an A profits interest transferred as compensa-
is allocated to the contributing partner. If con- inventory item in the hands of the contribu- tion for services is not subject to the rules for re-
tributed property is subject to depreciation or ting partner, any gain or loss on its dispo- stricted property that apply to capital interests.
other cost recovery, the allocation of deductions sition by the partnership within 5 years af-
for these items takes into account built-in gain ter the contribution is ordinary income or
or loss on the property. However, the total de- loss. Inventory items are defined later un-
preciation, depletion, gain, or loss allocated to der Payments for Unrealized Receivables Basis of Partner's
partners cannot be more than the depreciation and Inventory Items. Interest
or depletion allowable to the partnership or the
gain or loss realized by the partnership. 3. Capital loss property. If the property was
a capital asset in the contributing partner's The basis of a partnership interest is the money
Example. Areta and Sofia formed an equal hands, any loss on its disposition by the plus the adjusted basis of any property the part-
partnership. Areta contributed $10,000 in cash partnership within 5 years after the contri- ner contributed. If the partner must recognize
to the partnership and Sofia contributed depre- bution is a capital loss. The capital loss is gain as a result of the contribution, this gain is
ciable property with a fair market value of limited to the amount by which the part- included in the basis of his or her interest. Any
$10,000 and an adjusted basis of $4,000. The ner's adjusted basis for the property ex- increase in a partner's individual liabilities be-
partnership's basis for depreciation is limited to ceeded the property's fair market value im- cause of an assumption of partnership liabilities
the adjusted basis of the property in Sofia's mediately before the contribution. is considered a contribution of money to the
partnership by the partner.
hands, $4,000. 4. Substituted basis property. If the dispo-
In effect, Areta purchased an undivided sition of any of the property listed in (1), Interest acquired by gift, etc. If a partner ac-
one-half interest in the depreciable property (2), or (3) is a nonrecognition transaction, quires an interest in a partnership by gift, inheri-
with her contribution of $10,000. Assuming that these rules apply when the recipient of the tance, or under any circumstance other than by
the depreciation rate is 10% a year under the property disposes of any substituted basis a contribution of money or property to the part-
General Depreciation System (GDS), she would property (other than certain corporate nership, the partner's basis must be determined
have been entitled to a depreciation deduction stock) resulting from the transaction. using the basis rules described in Pub. 551.
of $500 per year, based on her interest in the
partnership, if the adjusted basis of the property
equaled its fair market value when contributed. Contribution of Services
To simplify this example, the depreciation de-
ductions are determined without regard to any A partner can acquire an interest in partnership
first-year depreciation conventions. capital or profits as compensation for services
performed or to be performed.

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Adjusted Basis an adjusted basis to him of $8,000 and a Effect of Partnership
$4,000 mortgage. The partnership assumed
There is a worksheet for adjusting the payment of the mortgage. The basis of Ivan's Liabilities
TIP basis of a partner's interest in the part- interest is:
nership in the Partner's Instructions for A partner's basis in a partnership interest in-
Schedule K-1 (Form 1065). Adjusted basis of contributed property $8,000 cludes the partner's share of a partnership lia-
bility only if, and to the extent that, the liability:
Minus: Part of mortgage assumed by other
The basis of an interest in a partnership is in- partners (80% (0.80) × $4,000) 3,200 1. Creates or increases the partnership's ba-
creased or decreased by certain items. sis in any of its assets;
Basis of Ivan's partnership interest $4,800
Increases. A partner's basis is increased by 2. Gives rise to a current deduction to the
partnership; or
the following items. Example 2. If, in Example 1, the contrib-
• The partner's additional contributions to uted property had a $12,000 mortgage, the ba- 3. Is a nondeductible, noncapital expense of
the partnership, including an increased sis of Ivan's partnership interest would be zero. the partnership.
share of, or assumption of, partnership lia- The $1,600 difference between the mortgage
bilities. assumed by the other partners, $9,600 (80% × The term “assets” in (1) includes capitalized
• The partner's distributive share of taxable $12,000), and his basis of $8,000 would be items allocable to future periods, such as or-
and nontaxable partnership income. treated as capital gain from the sale or ex- ganization expenses.
• The partner's distributive share of the ex- change of a partnership interest. However, this A partner's share of accrued but unpaid ex-
cess of the deductions for depletion over gain wouldn't increase the basis of his partner- penses or accounts payable of a cash basis
the basis of the depletable property, unless ship interest. partnership are not included in the adjusted ba-
the property is oil or gas wells whose basis
has been allocated to partners. Book value of partner's interest. The adjus- sis of the partner's interest in the partnership.
ted basis of a partner's interest is determined
Decreases. The partner's basis is decreased without considering any amount shown in the Partner's basis increased. If a partner's
(but never below zero) by the following items. partnership books as a capital, equity, or similar share of partnership liabilities increases, or a
• The money (including a decreased share account. partner's individual liabilities increase because
of partnership liabilities or an assumption he or she assumes partnership liabilities, this in-
of the partner's individual liabilities by the Example. Enzo contributes to his partner- crease is treated as a contribution of money by
partnership) and adjusted basis of property ship property that has an adjusted basis of $400 the partner to the partnership.
distributed to the partner by the partner- and a fair market value of $1,000. His partner Partner's basis decreased. If a partner's
ship. contributes $1,000 cash. While each partner share of partnership liabilities decreases, or a
• The partner's distributive share of the part- has increased his capital account by $1,000, partner's individual liabilities decrease because
nership losses (including capital losses). which will be reflected in the partnership’s the partnership assumes his or her individual li-
• The partner's distributive share of nonde- books, the adjusted basis of Enzo's interest is abilities, this decrease is treated as a distribu-
ductible partnership expenses that are not only $400 and the adjusted basis of his part- tion of money to the partner by the partnership.
capital expenditures. This includes the ner's interest is $1,000.
partner's share of any section 179 expen-
ses, even if the partner cannot deduct the When determined. The adjusted basis of a Assumption of liability. Generally, a partner
entire amount on his or her individual in- partner's partnership interest is ordinarily deter- or related person is considered to assume a
come tax return. mined at the end of the partnership's tax year. partnership liability only to the extent that:
• The partner's deduction for depletion for However, if there has been a sale or exchange 1. He or she is personally liable for it,
any partnership oil and gas wells, up to the of all or part of the partner's interest or a liquida-
proportionate share of the adjusted basis tion of his or her entire interest in a partnership, 2. The creditor knows that the liability was
of the wells allocated to the partner. the adjusted basis is determined on the date of assumed by the partner or related person,
• A partner’s distributive share of foreign sale, exchange, or liquidation. 3. The creditor can demand payment from
taxes paid or accrued by the partnership the partner or related person, and
for tax years beginning after 2017. Alternative rule for figuring adjusted basis.
• A partner’s distributive share of the adjus- In certain cases, the adjusted basis of a part- 4. No other partner or person related to an-
ted basis of a partnership’s property dona- nership interest can be figured by using the other partner will bear the economic risk of
tion to charity. partner's share of the adjusted basis of partner- loss on that liability immediately after the
ship property that would be distributed if the assumption.
Note. If the property’s fair market value ex- partnership terminated. Related person. Related persons, for
ceeds its adjusted basis, a special rule provides This alternative rule can be used in either of these purposes, includes all the following.
that the basis limitation on partner losses does the following situations. • An individual and his or her spouse, ances-
not apply to the extent of the partner’s distribu- • The circumstances are such that the part- tors, and lineal descendants.
tive share of the excess for tax years beginning ner cannot practicably apply the general • An individual and a corporation if the indi-
after 2017. basis rules. vidual directly or indirectly owns 80% or
Partner's liabilities assumed by partner • It is, in the opinion of the IRS, reasonable more in value of the outstanding stock of
ship. If contributed property is subject to a debt to conclude that the result produced will the corporation.
or if a partner's liabilities are assumed by the not vary substantially from the result under • Two corporations that are members of the
partnership, the basis of that partner's interest is the general basis rules. same controlled group.
reduced (but not below zero) by the liability as- Adjustments may be necessary in figuring • A grantor and a fiduciary of any trust.
sumed by the other partners. This partner must the adjusted basis of a partnership interest un- • Fiduciaries of two separate trusts if the
reduce his or her basis because the assumption der the alternative rule. For example, adjust- same person is a grantor of both trusts.
of the liability is treated as a distribution of ments would be required to include in the part- • A fiduciary and a beneficiary of the same
money to that partner. The other partners' as- ner's share of the adjusted basis of partnership trust.
sumption of the liability is treated as a contribu- property any significant discrepancies that re- • A fiduciary and a beneficiary of two sepa-
tion by them of money to the partnership. See sulted from contributed property, transfers of rate trusts if the same person is a grantor
Effect of Partnership Liabilities, later. partnership interests, or distributions of property of both trusts.
to the partners. • A fiduciary of a trust and a corporation if
Example 1. Ivan acquired a 20% interest in the trust or the grantor of the trust directly
a partnership by contributing property that had or indirectly owns 80% or more in value of
the outstanding stock of the corporation.
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• A person and a tax-exempt educational or If neither partner has an economic risk of Sale, Exchange,
charitable organization controlled directly loss in the liability, it is a nonrecourse liability.
or indirectly by the person or by members Each partner's basis would include his or her or Other Transfer
of the person's family. share of the liability, $30,000.
• A corporation and a partnership if the If Teresa is required to pay the creditor if the The sale or exchange of a partner's interest in a
same persons own 80% or more in value partnership defaults, she has an economic risk partnership usually results in capital gain or
of the outstanding stock of the corporation of loss in the liability. Her basis in the partner- loss. However, see Payments for Unrealized
and 80% or more of the capital or profits in- ship would be $80,000 ($20,000 + $60,000), Receivables and Inventory Items, later, for cer-
terest in the partnership. while Juan's basis would be $20,000. tain exceptions. Gain or loss is the difference
• Two S corporations or an S corporation between the amount realized and the adjusted
and a C corporation if the same persons Limited partner. A limited partner gener- basis of the partner's interest in the partnership.
own 80% or more in value of the outstand- ally has no obligation to contribute additional If the selling partner is relieved of any partner-
ing stock of each corporation. capital to the partnership and therefore doesn't ship liabilities, that partner must include the lia-
• An executor and a beneficiary of an estate. have an economic risk of loss in partnership re- bility relief as part of the amount realized for his
• A partnership and a person owning, di- course liabilities. Thus, absent some other fac- or her interest.
rectly or indirectly, 80% or more of the cap- tor, such as the guarantee of a partnership lia-
ital or profits interest in the partnership. bility by the limited partner or the limited partner Example 1. Kumar became a limited part-
• Two partnerships if the same persons di- making the loan to the partnership, a limited ner in the ABC Partnership by contributing
rectly or indirectly own 80% or more of the partner generally doesn't have a share of part- $10,000 in cash on the formation of the partner-
capital or profits interests. nership recourse liabilities. ship. The adjusted basis of his partnership in-
terest at the end of the current year is $20,000,
Property subject to a liability. If property Partner's share of nonrecourse liabilities. A which includes his $15,000 share of partnership
contributed to a partnership by a partner or dis- partnership liability is a nonrecourse liability if liabilities. The partnership has no unrealized re-
tributed by the partnership to a partner is sub- no partner or related person has an economic ceivables or inventory items. Kumar sells his in-
ject to a liability, the transferee is treated as risk of loss for that liability. A partner's share of terest in the partnership for $10,000 in cash. He
having assumed the liability to the extent it nonrecourse liabilities is generally proportionate had been paid his share of the partnership in-
doesn't exceed the fair market value of the to his or her share of partnership profits. How- come for the tax year.
property. ever, this rule may not apply if the partnership Kumar realizes $25,000 from the sale of his
has taken deductions attributable to nonre- partnership interest ($10,000 cash payment +
Partner's share of recourse liabilities. A course liabilities or the partnership holds prop- $15,000 liability relief). He reports $5,000
partnership liability is a recourse liability to the erty that was contributed by a partner. ($25,000 realized − $20,000 basis) as a capital
extent that any partner or a related person, de- gain.
fined earlier under Related person, has an eco- More information. For more information on
nomic risk of loss for that liability. A partner's the effect of partnership liabilities, including Example 2. The facts are the same as in
share of a recourse liability equals his or her rules for limited partners and examples, see Example 1, except that Kumar withdraws from
economic risk of loss for that liability. A partner Regulations sections 1.752-1 through 1.752-5. the partnership when the adjusted basis of his
has an economic risk of loss if that partner or a interest in the partnership is zero. He is consid-
related person would be obligated (whether by ered to have received a distribution of $15,000,
agreement or law) to make a net payment to the Disposition of his relief of liability. He reports a capital gain of
creditor or a contribution to the partnership with $15,000.
respect to the liability if the partnership were Partner's Interest
constructively liquidated. A partner who is the Installment reporting for sale of partnership
creditor for a liability that would otherwise be a The following discussions explain the treatment interest. A partner who sells a partnership in-
nonrecourse liability of the partnership has an of gain or loss from the disposition of an interest terest at a gain may be able to report the sale
economic risk of loss in that liability. in a partnership. on the installment method. For requirements
and other information on installment sales, see
Constructive liquidation. Generally, in a Abandoned or worthless partnership inter- Pub. 537.
constructive liquidation, the following events are est. A loss incurred from the abandonment or Part of the gain from the installment sale
treated as occurring at the same time. worthlessness of a partnership interest is an or- may be allocable to unrealized receivables or
• All partnership liabilities become payable dinary loss only if both of the following tests are inventory items. See Payments for Unrealized
in full. met. Receivables and Inventory Items next. The gain
• All of the partnership's assets have a value • The transaction is not a sale or exchange. allocable to unrealized receivables and inven-
of zero, except for property contributed to • The partner has not received an actual or tory items must be reported in the year of sale.
secure a liability. deemed distribution from the partnership. The gain allocable to the other assets can be
• All property is disposed of by the partner- reported under the installment method.
ship in a fully taxable transaction for no If the partner receives even a de minimis actual
consideration except relief from liabilities or deemed distribution, the entire loss generally
for which the creditor's right to reimburse- is a capital loss. However, see Payments for Payments for Unrealized
ment is limited solely to one or more assets Unrealized Receivables and Inventory Items,
of the partnership. later. Receivables and Inventory
• All items of income, gain, loss, or deduc- For information on how to report an aban- Items
tion are allocated to the partners. donment loss, see the Instructions for Form
• The partnership liquidates. 4797. See Revenue Ruling 93-80 for more in- If a partner receives money or property in ex-
formation on determining if a loss incurred on change for any part of a partnership interest, the
Example. Juan and Teresa form a cash ba- the abandonment or worthlessness of a part- amount due to his or her share of the partner-
sis general partnership with cash contributions nership interest is a capital or an ordinary loss. ship's unrealized receivables or inventory items
of $20,000 each. Under the partnership agree- results in ordinary income or loss. This amount
ment, they share all partnership profits and los- Partnership election to adjust basis of part- is treated as if it were received for the sale or
ses equally. The partnership borrows $60,000 nership property. Generally, a partnership's exchange of property that is not a capital asset.
and purchases depreciable business equip- basis in its assets is not affected by a transfer of
ment. This debt is included in the partners' ba- an interest in the partnership, whether by sale This treatment applies to the unrealized re-
sis in the partnership because incurring it cre- or exchange or because of the death of a part- ceivables part of payments to a retiring partner
ates an additional $60,000 of basis in the ner. However, the partnership can elect to or successor in interest of a deceased partner
partnership's depreciable property. make an optional adjustment to basis in the only if that part is not treated as paid in ex-
year of transfer. change for partnership property. See Liquida-
tion at Partner's Retirement or Death, later.
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Unrealized receivables. Unrealized receiva- depreciable property. The remaining $5,000 or her tax return for the year in which the sale or
bles include any rights to payment not already gain is a capital gain. exchange occurs. The statement must contain
included in income for the following items. the following information.
• Goods delivered or to be delivered to the Inventory items. Inventory items are not limi- • The date of the sale or exchange.
extent the payment would be treated as re- ted to stock-in-trade of the partnership. They • The amount of any gain or loss attributable
ceived for property other than a capital as- also include the following property. to the unrealized receivables or inventory.
set. • Property that would properly be included in • The amount of any gain or loss attributable
• Services rendered or to be rendered. the partnership's inventory if on hand at the to capital gain or loss on the sale of the
These rights must have arisen under a con- end of the tax year or that is held primarily partnership interest.
tract or agreement that existed at the time of for sale to customers in the normal course
sale or distribution, even though the partnership of business. Partner's disposition of distributed unreal-
may not be able to enforce payment until a later • Property that, if sold or exchanged by the ized receivables or inventory items. In gen-
date. For example, unrealized receivables in- partnership, wouldn't be a capital asset or eral, any gain or loss on a sale or exchange of
clude accounts receivable of a cash method section 1231 property (real or depreciable unrealized receivables or inventory items a part-
partnership and rights to payment for work or business property held more than 1 year). ner received in a distribution is an ordinary gain
goods begun but incomplete at the time of the For example, accounts receivable ac- or loss. For this purpose, inventory items do not
sale or distribution of the partner's share. quired for services or from the sale of in- include real or depreciable business property,
ventory and unrealized receivables are in- even if they are not held more than 1 year.
The basis for any unrealized receivables in- ventory items.
cludes all costs or expenses for the receivables • Property held by the partnership that would Example. Oscar, a distributee partner, re-
that were paid or accrued but not previously be considered inventory if held by the part- ceived his share of accounts receivable when
taken into account under the partnership's ner selling the partnership interest or re- his law firm dissolved. The partnership used the
method of accounting. ceiving the distribution. cash method of accounting, so the receivables
Other items treated as unrealized receiv had a basis of zero. If Oscar later collects the
ables. Unrealized receivables include potential Notification required of partner. If a partner receivables or sells them, the amount he re-
gain that would be ordinary income if the follow- exchanges a partnership interest attributable to ceives will be ordinary income.
ing partnership property were sold at its fair unrealized receivables or inventory for money
market value on the date of the payment. or property, he or she must notify the partner- Exception for inventory items held more
• Mining property for which exploration ex- ship in writing. This must be done within 30 than 5 years. If a distributee partner sells in-
penses were deducted. days of the transaction or, if earlier, by January ventory items held for more than 5 years after
• Stock in a domestic international sales cor- 15 of the calendar year following the calendar the distribution, the type of gain or loss depends
poration (DISC). year of the exchange. A partner may be subject on how they are being used on the date sold.
• Certain farm land for which expenses for to a $50 penalty for each failure to notify the The gain or loss is capital gain or loss if the
soil and water conservation or land clear- partnership about such a transaction, unless property is a capital asset in the partner's hands
ing were deducted. the failure was due to reasonable cause and not at the time sold.
• Franchises, trademarks, or trade names. willful neglect.
Example. Marucia receives, through disso-
• Oil, gas, or geothermal property for which lution of her partnership, inventory that has a
intangible drilling and development costs Information return required of partnership.
were deducted. When a partnership is notified of an exchange basis of $19,000. Within 5 years, she sells the
• Stock of certain controlled foreign corpora- of partnership interests involving unrealized re- inventory for $24,000. The $5,000 gain is taxed
tions. ceivables or inventory items, the partnership as ordinary income. If she had held the inven-
• Market discount bonds and short-term obli- must file Form 8308, Report of a Sale or Ex- tory for more than 5 years, her gain would have
gations. change of Certain Partnership Interests. Form been capital gain, provided the inventory was a
• Property subject to recapture of deprecia- 8308 is filed with Form 1065 for the tax year that capital asset in her hands at the time of sale.
tion under sections 1245 and 1250 of the includes the last day of the calendar year in Substituted basis property. If a distribu-
Internal Revenue Code. Depreciation re- which the exchange took place. If notified of an tee partner disposes of unrealized receivables
capture is discussed in chapter 3 of Pub. exchange after filing Form 1065, the partner- or inventory items in a nonrecognition transac-
544. ship must file Form 8308 separately, within 30 tion, ordinary gain or loss treatment applies to a
days of the notification. later disposition of any substituted basis prop-
Determining gain or loss. The income or On Form 8308, the partnership provides its erty resulting from the transaction.
loss realized by a partner upon the sale or ex- telephone number and states the date of the ex-
change of its interest in unrealized receivables change and the names, addresses, and tax- Foreign partner's transfer of an interest in a
and inventory items, discussed below, is the payer identification numbers of the partnership partnership engaged in the conduct of a
amount that would have been allocated to the filing the return and the transferee and trans- U.S. trade or business. Section 864(c)(8) re-
partner if the partnership had sold all of its prop- feror in the exchange. The partnership must quires a foreign partner that transfers part or all
erty for cash at fair market value, in a fully taxa- provide a copy of Form 8308 (or a written state- of an interest in a partnership engaged in the
ble transaction, immediately prior to the part- ment with the same information) to each trans- conduct of a trade or business in the United
ner's transfer of interest in the partnership. Any feree and transferor by the later of January 31 States (U.S. trade or business) to include in in-
gain or loss recognized that is attributable to the following the end of the calendar year or 30 come the effectively connected gain or loss
unrealized receivables and inventory items will days after it receives notice of the exchange. from the transfer. A partnership distribution is
be ordinary gain or loss. The partnership may be subject to a penalty considered a transfer when it results in recogni-
for each failure to timely file Form 8308 and a tion of gain or loss. See Regulations section
Example. You are a partner in ABC Part- penalty for each failure to furnish a copy of 1.731-1(a).
nership. The adjusted basis of your partnership Form 8308 to a transferor or transferee, unless In general, any foreign person, any domestic
interest at the end of the current year is zero. the failure is due to reasonable cause and not partnership that has a foreign person as a direct
Your share of potential ordinary income from willful neglect. If the failure is intentional, a partner, and any domestic partnership that has
partnership depreciable property is $5,000. The higher penalty may be imposed. See Internal actual knowledge that a foreign person indi-
partnership has no other unrealized receivables Revenue Code sections 6722, 6723, and 6724 rectly holds, through one or more partnerships,
or inventory items. You sell your interest in the for details. an interest in the domestic partnership that
partnership for $10,000 in cash and you report transfers an interest in a partnership engaged in
the entire amount as a gain since your adjusted Statement required of partner. If a partner
basis in the partnership is zero. You report as sells or exchanges any part of an interest in a
ordinary income your $5,000 share of potential partnership having unrealized receivables or in-
ordinary income from the partnership's ventory, he or she must file a statement with his

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a U.S. trade or business must notify the partner- between payments in liquidation of the partner's erty are treated as distributive shares of part-
ship of the transfer in writing within 30 days af- interest in partnership property and other pay- nership income or guaranteed payments. This
ter the transfer. The notification must include: ments. The partnership's payments include an rule applies regardless of the time over which
• The names and addresses of the notifying assumption of the partner's share of partnership the payments are to be made. It applies to pay-
transferor and the transferee or transfer- liabilities treated as a distribution of money. ments made for the partner's share of unreal-
ees; ized receivables and goodwill not treated as a
• The U.S. taxpayer identification number For income tax purposes, a retiring partner distribution.
(TIN) of the notifying transferor and, if or successor in interest of a deceased partner is If the amount is based on partnership in-
known, of the transferee or transferees; treated as a partner until his or her interest in come, the payment is taxable as a distributive
and the partnership has been completely liquidated. share of partnership income. The payment re-
tains the same character when reported by the
• The date of the transfer. Liquidating payments. Payments made in liq- recipient that it would have had if reported by
This notification requirement does not apply uidation of the interest of a retiring or deceased the partnership.
to the transfer of an interest in a publicly traded partner in exchange for his or her interest in If the amount is not based on partnership in-
partnership if the interest is publicly traded on partnership property are considered a distribu- come, it is treated as a guaranteed payment.
an established securities market or is readily tion, not a distributive share or guaranteed pay- The recipient reports guaranteed payments as
tradable on a secondary market (or the sub- ment that could give rise to a deduction (or its ordinary income. For additional information on
stantial equivalent thereof). It also does not ap- equivalent) for the partnership. guaranteed payments, see Transactions Be-
ply to a notifying transferor that is treated as Unrealized receivables and goodwill. tween Partnership and Partners, earlier.
transferring an interest in the partnership be- Payments made for the retiring or deceased These payments are included in income by
cause it received a distribution from the partner- partner's share of the partnership's unrealized the recipient for his or her tax year that includes
ship. This notification may be combined with or receivables or goodwill are not treated as made the end of the partnership tax year for which the
provided at the same time as the statement re- in exchange for partnership property if both of payments are a distributive share or in which
quired of a partner that sells or exchanges any the following tests are met. the partnership is entitled to deduct them as
part of an interest in a partnership having unre- • Capital is not a material income-producing guaranteed payments.
alized receivables or inventory, provided that it factor for the partnership. Whether capital Former partners who continue to make guar-
satisfies the requirements of both sections. For is a material income-producing factor is ex- anteed periodic payments to satisfy the partner-
more information, see Regulations section plained in the discussion under Partner- ship's liability to a retired partner after the part-
1.864(c)(8)-2. ship Interests Created by Gift near the be- nership is terminated can deduct the payments
To determine the amount of gain or loss de- ginning of this publication. as a business expense in the year paid.
scribed in section 864(c)(8), generally, a foreign • The retiring or deceased partner was a
transferor must first determine its outside gain general partner in the partnership.
or loss on the transfer of a partnership interest. Tax Equity and Fiscal
For this purpose, outside gain or loss is deter- However, this rule doesn't apply to payments
mined under all relevant provisions of the Code for goodwill to the extent that the partnership Responsibility Act of
and regulations thereunder. A foreign transferor agreement provides for a reasonable payment
may recognize outside capital gain or loss and to a retiring partner for goodwill. 1982 (TEFRA)
outside ordinary gain or loss on the transfer of Unrealized receivables includes, to the ex-
its partnership interest and must separately ap- tent not previously includible in income under TEFRA is the common acronym used for a set
ply section 864(c)(8) with respect to its capital the method of accounting used by the partner- of consolidated examination, processing, and
gain or loss and its ordinary gain or loss. ship, any rights (contractual or otherwise) to judicial procedures which determine the tax
payment for (1) goods delivered, or to be deliv- treatment of partnership items at the partner-
The foreign transferor must compare the ered, to the extent the proceeds therefrom ship level for partnerships and limited liability
outside gain or loss amounts with the relevant would be treated as amounts received from the companies (LLCs) that file as partnerships. TE-
aggregate deemed sale effectively connected sale or exchange of property other than a capi- FRA created the unified partnership audit and
gain or loss that the partnership calculates tal asset; or (2) services rendered, or to be ren- litigation procedures (TEFRA partnership pro-
based on the foreign transferor's distributive dered. cedures) of Internal Revenue Code sections
share of gain or loss that would have been ef-
6221 through 6234 (prior to the amendments by
fectively connected if the partnership had sold Partners' valuation. Generally, the part- BBA). For additional information on TEFRA
all of its assets at fair market value. This infor- ners' valuation of a partner's interest in partner- partnership procedures, see the January 2016
mation will be provided to the notifying trans- ship property in an arm's-length agreement will revision of Pub. 541.
feror on or before the due date (with exten- be treated as correct. If the valuation reflects
sions) for issuing Schedule K-1 (Form 1065), only the partner's net interest in the property (to- The TEFRA partnership audit proce-
Partner’s Share of Income, Deductions, Credits, tal assets less liabilities), it must be adjusted so ! dures were repealed and do not apply
etc. The foreign transferor only includes in in- that both the value of, and the basis for, the CAUTION to tax years beginning after 2017. The
come the lower of the outside amount and the partner's interest include the partner's share of Bipartisan Budget Act of 2015 (BBA) is effective
deemed sale effectively connected amount. partnership liabilities. for partnership tax years beginning after 2017.
This determination is made separately with re-
spect to capital gain or loss and ordinary gain or Gain or loss on distribution. Upon the re-
loss. For example, a foreign transferor would ceipt of the distribution, the retiring partner or
compare its outside ordinary gain to its aggre- successor in interest of a deceased partner will Bipartisan Budget Act of
gate deemed sale effectively connected ordi- recognize gain only to the extent that any
nary gain, treating the former as effectively con- money (and marketable securities treated as 2015 (BBA)
nected gain only to the extent it does not money) distributed is more than the partner's
exceed the latter. For more information, see adjusted basis in the partnership. The partner The BBA created a new centralized partnership
Regulations section 1.864(c)(8)-1. will recognize a loss only if the distribution is in audit regime effective for partnership tax years
money, unrealized receivables, and inventory beginning after 2017. The new regime replaces
items. No loss is recognized if any other prop- the consolidated audit proceedings under TE-
Liquidation at Partner's erty is received. See Partner's Gain or Loss un- FRA and the electing large partnership provi-
Retirement or Death der Partnership Distributions, earlier. sions. The new audit regime applies to all part-
nerships unless the partnership is an eligible
Payments made by the partnership to a retiring Other payments. Payments made by the part- partnership and elects out by making a valid
partner or successor in interest of a deceased nership to a retiring partner or successor in in- election. See the Instructions for Form 1065.
partner in return for the partner's entire interest terest of a deceased partner that are not made
in the partnership may have to be allocated in exchange for an interest in partnership prop-

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Role of Partnership • A disregarded entity described in Regula- partnership-related items. The Form 8082 must
tions section 301.7701-2(c)(2)(i). be used if filing electronically.
Representative • An estate of an individual other than a de-
Under the centralized partnership audit regime, ceased partner. AARs filed under the centralized partner-
partnerships are required to designate a part- • Any person that holds an interest in the ship audit regime. Partnerships subject to the
nership representative. The partnership repre- partnership on behalf of another person. centralized partnership audit regime and filing
sentative will have the sole authority to act on See the Instructions for Form 1065 if elect- an AAR that result in an imputed underpayment
behalf of the partnership under the centralized ing out of the centralized partnership audit and any interest or penalties related to the im-
partnership audit regime. The designated part- regime. puted underpayment should report the imputed
underpayment and any related interest and
nership representative is a partner or other per- An annual election out of the centralized penalties on Form 1065 or 1065-X (as applica-
son with substantial presence in the United partnership audit regime must be made on the ble). See the Instructions for Form 1065.
States. If the designated partnership represen- eligible partnership’s timely filed return, includ-
tative is an entity, the partnership must also ap- ing extensions, for the tax year to which the See the instructions for Form 8082 or
point a designated individual to act on behalf of election applies. The election is made by in- 1065-X (as applicable) for the following.
the entity partnership representative. The part- cluding the following information on Sched- • Information pertaining to certain modifica-
nership must include information regarding the ule B-2 (Form 1065) and filing with the tax re- tions that are allowable for the partnership
partnership representative and designated indi- turn. to include in its calculation of an AAR im-
vidual (if applicable) on Form 1065, Sched- • The name of each partner. puted underpayment.
ule B. For more information, see the Instruc- • The taxpayer identification number (TIN) of • Information pertaining to the ability for the
tions for Form 1065. each partner. partnership to make an election under sec-
• The federal tax classification for each part- tion 6227(b)(2) of the Internal Revenue
ner. Code to have the adjustments of the AAR
Electing Out of the • If an S corporation is a partner, provide the taken into account by the reviewed year
Centralized Partnership names, TINs, and federal tax classification partners, rather than the partnership mak-
Audit Regime of any shareholder of the S corporation for ing an imputed underpayment.
the tax year of the S corporation ending
A partnership can elect out of the centralized with or within the partnership’s tax year. Partner amended return filed as part of
partnership audit regime for a tax year if the modification of the imputed underpayment
partnership is an eligible partnership that year. This annual election once made may not be during a BBA examination. Section 6225(c)
A partnership is an eligible partnership for a tax revoked without the consent of the IRS. A part- of the Internal Revenue Code allows a BBA
year if it has 100 or fewer eligible partners. A nership that elects out of the centralized part- partnership under examination to request spe-
partner is an eligible partner if it is an individual, nership audit regime must notify each of its cific types of modifications of any imputed un-
C corporation, foreign entity that would be trea- partners of the election within 30 days of mak- derpayment proposed by the IRS. One type of
ted as a C corporation if it was domestic, S cor- ing the election. By making the election out of modification (under section 6225(c)(2) of the In-
poration, or an estate of a deceased partner. the centralized partnership audit regime, you ternal Revenue Code) that may be requested is
The determination as to whether the partner- are affirming that all of the partners in the part- when one or more (reviewed year) partners file
ship has 100 or fewer partners is made by add- nership meet the eligibility requirements under amended returns for the tax years of the part-
ing the number of Schedules K-1 required to be section 6221(b)(1)(C) of the Internal Revenue ners which includes the end of the reviewed
issued by the partnership to the number of Code and you have provided all of the required year of the BBA partnership under examination
Schedules K-1 required to be issued by any information with the Form 1065. and for any tax year with respect to which tax
partner that is an S corporation to its sharehold- attributes are affected. See the Instructions for
Form 8980.
ers for the tax year of the S corporation ending Amended Return
with or within the partnership tax year. A part-
nership is not an eligible partnership if it is re- Rather than filing an amended return, a partner- How To Sign Documents on
quired to issue a Schedule K-1 to any of the fol- ship that is subject to the centralized partner- Behalf of the Partnership
lowing partners. ship audit regime must file either Form 8082,
• A partnership. Notice of Inconsistent Treatment or Administra-
• A trust. tive Adjustment Request (AAR), or Form
• A foreign entity that would not be treated 1065-X, Amended Return or Administrative Ad-
as a C corporation were it a domestic en- justment Request (AAR), to request an adminis-
tity. trative adjustment for an amount of one or more
How To Sign Documents on Behalf of the Partnership
The following are examples of how a partnership representative (PR) should sign documents on behalf of the partnership. The manner in which the PR signs depends on whether the PR
is an entity or an individual. If the PR is an entity, the designated individual (DI) signs in his or her capacity to act on behalf of that entity partnership representative.
Designated Partnership Representative (PR) Signature as Partnership Representative (PR) Example
Individual Individual's signature John Smith, PR
Entity Designated individual’s (DI) signature Entity Name, PR, by John Smith, DI
1099-NEC, etc.); unemployment compensation filing your return online or in your local commun-
statements (by mail or in a digital format) or ity, if you qualify, which include the following.
other government payment statements (Form • Free File. This program lets you prepare
How To Get Tax Help 1099-G); and interest, dividend, and retirement and file your federal individual income tax
statements from banks and investment firms return for free using brand-name tax-prep-
If you have questions about a tax issue, need (Forms 1099), you have several options to aration-and-filing software or Free File filla-
help preparing your tax return, or want to down- choose from to prepare and file your tax return. ble forms. However, state tax preparation
load free publications, forms, or instructions, go You can prepare the tax return yourself, see if may not be available through Free File. Go
to IRS.gov and find resources that can help you you qualify for free tax preparation, or hire a tax to IRS.gov/FreeFile to see if you qualify for
right away. professional to prepare your return. free online federal tax preparation, e-filing,
and direct deposit or payment options.
Preparing and filing your tax return. After Free options for tax preparation. Go to • VITA. The Volunteer Income Tax Assis-
receiving all your wage and earnings state- IRS.gov to see your options for preparing and tance (VITA) program offers free tax help
ments (Form W-2, W-2G, 1099-R, 1099-MISC, to people with low-to-moderate incomes,

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persons with disabilities, and limited-Eng- • IRS.gov/Forms: Find forms, instructions, Online tax information in other languages.
lish-speaking taxpayers who need help and publications. You will find details on You can find information on IRS.gov/
preparing their own tax returns. Go to 2020 tax changes and hundreds of interac- MyLanguage if English isn’t your native lan-
IRS.gov/VITA, download the free IRS2Go tive links to help you find answers to your guage.
app, or call 800-906-9887 for information questions.
on free tax return preparation. • You may also be able to access tax law in- Free interpreter service. Multilingual assis-
• TCE. The Tax Counseling for the Elderly formation in your electronic filing software. tance, provided by the IRS, is available at Tax-
(TCE) program offers free tax help for all payer Assistance Centers (TACs) and other
taxpayers, particularly those who are 60 IRS offices. Over-the-phone interpreter service
years of age and older. TCE volunteers Need someone to prepare your tax return? is accessible in more than 350 languages.
specialize in answering questions about There are various types of tax return preparers,
pensions and retirement-related issues including tax preparers, enrolled agents, certi- Getting tax forms and publications. Go to
unique to seniors. Go to IRS.gov/TCE, fied public accountants (CPAs), attorneys, and IRS.gov/Forms to view, download, or print all of
download the free IRS2Go app, or call many others who don’t have professional cre- the forms, instructions, and publications you
888-227-7669 for information on free tax dentials. If you choose to have someone pre- may need. You can also download and view
return preparation. pare your tax return, choose that preparer popular tax publications and instructions (in-
• MilTax. Members of the U.S. Armed wisely. A paid tax preparer is: cluding the Instructions for Forms 1040 and
Forces and qualified veterans may use Mil- • Primarily responsible for the overall sub- 1040-SR) on mobile devices as an eBook at
Tax, a free tax service offered by the De- stantive accuracy of your return, IRS.gov/eBooks. Or you can go to IRS.gov/
partment of Defense through Military One- • Required to sign the return, and OrderForms to place an order.
Source. • Required to include their preparer tax iden-
Also, the IRS offers Free Fillable tification number (PTIN). Access your online account (individual tax-
Forms, which can be completed online and payers only). Go to IRS.gov/Account to se-
then filed electronically regardless of in- Although the tax preparer always signs the curely access information about your federal tax
come. return, you're ultimately responsible for provid- account.
ing all the information required for the preparer • View the amount you owe, pay online, or
Using online tools to help prepare your re- to accurately prepare your return. Anyone paid set up an online payment agreement.
turn. Go to IRS.gov/Tools for the following. to prepare tax returns for others should have a • Access your tax records online.
• The Earned Income Tax Credit Assistant thorough understanding of tax matters. For • Review your payment history.
(IRS.gov/EITCAssistant) determines if more information on how to choose a tax pre- • Go to IRS.gov/SecureAccess to review the
you’re eligible for the earned income credit parer, go to Tips for Choosing a Tax Preparer required identity authentication process.
(EIC). on IRS.gov.
• The Online EIN Application IRS.gov/EIN ( ) Using direct deposit. The fastest way to re-
helps you get an employer identification Coronavirus. Go to IRS.gov/Coronavirus for ceive a tax refund is to file electronically and
number (EIN). links to information on the impact of the corona- choose direct deposit, which securely and elec-
• The Tax Withholding Estimator IRS.gov/ ( virus, as well as tax relief available for individu- tronically transfers your refund directly into your
W4app) makes it easier for everyone to als and families, small and large businesses, financial account. Direct deposit also avoids the
pay the correct amount of tax during the and tax-exempt organizations. possibility that your check could be lost, stolen,
year. The tool is a convenient, online way or returned undeliverable to the IRS. Eight in 10
to check and tailor your withholding. It’s Tax reform. Tax reform legislation affects indi- taxpayers use direct deposit to receive their re-
more user-friendly for taxpayers, including viduals, businesses, and tax-exempt and gov- funds. The IRS issues more than 90% of re-
retirees and self-employed individuals. The ernment entities. Go to IRS.gov/TaxReform for funds in less than 21 days.
features include the following. information and updates on how this legislation
– Easy to understand language. affects your taxes. Getting a transcript of your return. The
quickest way to get a copy of your tax transcript
– The ability to switch between screens, Employers can register to use Business is to go to IRS.gov/Transcripts. Click on either
correct previous entries, and skip Services Online. The Social Security Adminis- “Get Transcript Online” or “Get Transcript by
screens that don’t apply. tration (SSA) offers online service at SSA.gov/ Mail” to order a free copy of your transcript. If
– Tips and links to help you determine if employer for fast, free, and secure online W-2 you prefer, you can order your transcript by call-
you qualify for tax credits and deduc- filing options to CPAs, accountants, enrolled ing 800-908-9946.
tions. agents, and individuals who process Form W-2,
– A progress tracker. Wage and Tax Statement, and Form W-2c, Reporting and resolving your tax-related
– A self-employment tax feature. Corrected Wage and Tax Statement. identity theft issues.
– Automatic calculation of taxable social
• Tax-related identity theft happens when
security benefits. IRS social media. Go to IRS.gov/SocialMedia someone steals your personal information
• The First-Time Homebuyer Credit Account to see the various social media tools the IRS to commit tax fraud. Your taxes can be af-
Look-up IRS.gov/HomeBuyer ( ) tool pro- uses to share the latest information on tax fected if your SSN is used to file a fraudu-
vides information on your repayments and changes, scam alerts, initiatives, products, and lent return or to claim a refund or credit.
account balance. services. At the IRS, privacy and security are
• The Sales Tax Deduction Calculator paramount. We use these tools to share public • The IRS doesn’t initiate contact with tax-
(IRS.gov/SalesTax) figures the amount you information with you. Don’t post your SSN or payers by email, text messages, telephone
can claim if you itemize deductions on other confidential information on social media calls, or social media channels to request
Schedule A (Form 1040). sites. Always protect your identity when using personal or financial information. This in-
any social networking site. cludes requests for personal identification
Getting answers to your tax ques- numbers (PINs), passwords, or similar in-
tions. On IRS.gov, you can get The following IRS YouTube channels pro-
up-to-date information on current vide short, informative videos on various tax-re- formation for credit cards, banks, or other
events and changes in tax law. lated topics in English, Spanish, and ASL. financial accounts.
• Youtube.com/irsvideos. • Go to IRS.gov/IdentityTheft, the IRS Iden-
• IRS.gov/Help: A variety of tools to help you • Youtube.com/irsvideosmultilingua. tity Theft Central webpage, for information
get answers to some of the most common • Youtube.com/irsvideosASL. on identity theft and data security protec-
tax questions. tion for taxpayers, tax professionals, and
• IRS.gov/ITA: The Interactive Tax Assistant, Watching IRS videos. The IRS Video portal businesses. If your SSN has been lost or
a tool that will ask you questions on a num- (IRSVideos.gov) contains video and audio pre- stolen or you suspect you’re a victim of
ber of tax law topics and provide answers. sentations for individuals, small businesses, tax-related identity theft, you can learn
and tax professionals. what steps you should take.

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• Get an Identity Protection PIN (IP PIN). IP • Use the Offer in Compromise Pre-Qualifier help you understand what these rights mean to
PINs are six-digit numbers assigned to eli- to see if you can settle your tax debt for you and how they apply. These are your rights.
gible taxpayers to help prevent the misuse less than the full amount you owe. For Know them. Use them.
of their SSNs on fraudulent federal income more information on the Offer in Compro-
tax returns. When you have an IP PIN, it mise program, go to IRS.gov/OIC. What Can TAS Do For You?
prevents someone else from filing a tax re-
turn with your SSN. To learn more, go to Filing an amended return. You can now file TAS can help you resolve problems that you
IRS.gov/IPPIN. Form 1040-X electronically with tax filing soft- can’t resolve with the IRS. And their service is
ware to amend 2019 Forms 1040 and 1040-SR. free. If you qualify for their assistance, you will
Checking on the status of your refund. To do so, you must have e-filed your original be assigned to one advocate who will work with
• Go to IRS.gov/Refunds. 2019 return. Amended returns for all prior years you throughout the process and will do every-
• The IRS can’t issue refunds before must be mailed. See Tips for taxpayers who thing possible to resolve your issue. TAS can
mid-February 2021 for returns that claimed need to file an amended tax return and go to help you if:
the EIC or the additional child tax credit IRS.gov/Form1040X for information and up- • Your problem is causing financial difficulty
(ACTC). This applies to the entire refund, dates. for you, your family, or your business;
not just the portion associated with these • You face (or your business is facing) an
credits. Checking the status of your amended re- immediate threat of adverse action; or
• Download the official IRS2Go app to your turn. Go to IRS.gov/WMAR to track the status • You’ve tried repeatedly to contact the IRS
mobile device to check your refund status. of Form 1040-X amended returns. Please note but no one has responded, or the IRS
• Call the automated refund hotline at that it can take up to 3 weeks from the date you hasn’t responded by the date promised.
800-829-1954. filed your amended return for it to show up in
our system, and processing it can take up to 16
Making a tax payment. The IRS uses the lat- weeks. How Can You Reach TAS?
est encryption technology to ensure your elec-
tronic payments are safe and secure. You can Understanding an IRS notice or letter TAS has offices in every state, the District of
make electronic payments online, by phone, you’ve received. Go to IRS.gov/Notices to Columbia, and Puerto Rico. Your local advo-
and from a mobile device using the IRS2Go find additional information about responding to cate’s number is in your local directory and at
app. Paying electronically is quick, easy, and an IRS notice or letter. TaxpayerAdvocate.IRS.gov/Contact-Us. You
faster than mailing in a check or money order. can also call them at 877-777-4778.
Go to IRS.gov/Payments for information on how Contacting your local IRS office. Keep in
to make a payment using any of the following mind, many questions can be answered on How Else Does TAS Help
options. IRS.gov without visiting an IRS Taxpayer Assis- Taxpayers?
• IRS Direct Pay: Pay your individual tax bill tance Center (TAC). Go to IRS.gov/LetUsHelp
or estimated tax payment directly from for the topics people ask about most. If you still TAS works to resolve large-scale problems that
your checking or savings account at no need help, IRS TACs provide tax help when a affect many taxpayers. If you know of one of
cost to you. tax issue can’t be handled online or by phone. these broad issues, please report it to them at
• Debit or Credit Card: Choose an approved All TACs now provide service by appointment, IRS.gov/SAMS.
payment processor to pay online, by so you’ll know in advance that you can get the
phone, or by mobile device. service you need without long wait times. Be- TAS for Tax Professionals
• Electronic Funds Withdrawal: Offered only fore you visit, go to IRS.gov/TACLocator to find
when filing your federal taxes using tax re- the nearest TAC and to check hours, available TAS can provide a variety of information for tax
turn preparation software or through a tax services, and appointment options. Or, on the professionals, including tax law updates and
professional. IRS2Go app, under the Stay Connected tab, guidance, TAS programs, and ways to let TAS
• Electronic Federal Tax Payment System: choose the Contact Us option and click on “Lo- know about systemic problems you’ve seen in
Best option for businesses. Enrollment is cal Offices.” your practice.
required.
• Check or Money Order: Mail your payment The Taxpayer Advocate Low Income Taxpayer
to the address listed on the notice or in-
structions. Service (TAS) Is Here To Clinics (LITCs)
• Cash: You may be able to pay your taxes Help You
LITCs are independent from the IRS. LITCs
with cash at a participating retail store. What Is TAS? represent individuals whose income is below a
• Same-Day Wire: You may be able to do
same-day wire from your financial institu- TAS is an independent organization within the certain level and need to resolve tax problems
tion. Contact your financial institution for IRS that helps taxpayers and protects taxpayer with the IRS, such as audits, appeals, and tax
availability, cost, and cut-off times. rights. Their job is to ensure that every taxpayer collection disputes. In addition, clinics can pro-
is treated fairly and that you know and under- vide information about taxpayer rights and re-
What if I can’t pay now? Go to IRS.gov/ stand your rights under the Taxpayer Bill of sponsibilities in different languages for individu-
Payments for more information about your op- Rights. als who speak English as a second language.
tions. Services are offered for free or a small fee for
• Apply for an online payment agreement eligible taxpayers. To find a clinic near you, visit
(IRS.gov/OPA) to meet your tax obligation How Can You Learn About Your www.TaxpayerAdvocate.IRS.gov/about-us/
in monthly installments if you can’t pay Taxpayer Rights? Low-Income-Taxpayer-Clinics-LITC/ or see IRS
your taxes in full today. Once you complete Pub. 4134, Low Income Taxpayer Clinic List.
the online process, you will receive imme- The Taxpayer Bill of Rights describes 10 basic
diate notification of whether your agree- rights that all taxpayers have when dealing with
ment has been approved. the IRS. Go to TaxpayerAdvocate.IRS.gov to

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                        To help us develop a more useful index, please let us know if you have ideas for index entries.
Index                   See “Comments and Suggestions” in the “Introduction” for the ways you can reach us.
 
                                                               Partnership's 10                 Partnership:
A                             E                              Limited liability company  2        Abandoned or worthless 
Allocations:                  Electronic filing 4            Liquidation:                        interest     11
  Built-in gain or loss 9                                      Constructive  11                  Agreement    4
  Installment sale 11                                          Partner's interest 6              Basis, contributed property 9
Assistance (See Tax help)     F                                Partner's retirement or death 13  Defined 2
                              Form:                          Losses:                             Exclusion from rules    4
                                8275    8                      Sales or exchanges   8            Forming 2
B                               8308    12                                                       Liabilities 10
Bipartisan Budget Act of 2015   8832    2                                                        Terminating   4
  (BBA) 13                      8865    8                    M                                   Transactions with partner 7
Built-in gain or loss 9                                      Marketable securities  5           Precontribution gain 5
                                                                                                Profits interest 9
                              G                                                                 Publications (See Tax help)
C                             Guaranteed payments  7         P
Capital interest 9                                           Partner's:
Contribution:                                                  Basis:                           S
  Basis of property 9         H                                Distributed property     6       Self-employed health 
  Built-in gain or loss 9     How to sign documents on         Partnership interest     9        insurance    7
  Distribution of property 9    behalf of the partnership 14   Interest:                        Short period return 4
  Net precontribution gain  5                                  Alternative rule, adjusted       Substantially appreciated 
  Property 8                                                         basis  10                   inventory items  5
  Services  9                 I                                Basis     9
                              Insurance, self-employed         Basis adjustments    10
                                health  7                      Book value    10                 T
D                             Inventory items, substantially   Gift    3 9,                     Tax help 14
Definition, partnership 2       appreciated 5                  Liquidation of     6 13,         Tax withholding, foreign partner 
Determining ownership     8                                    Mandatory basis                   of firm 2
Distributions:                                                       adjustment   7             TEFRA 13
                                                               Performance of services    3     Terminating a partnership  4
  Gain or loss 5              L                                Sale, exchange, transfer   11
  Partner's debt 5            Liability:
  Partnership  4                Assumption of   10             Special basis adjustment      6
Distributive share:             Partner's assumed by           Transactions with partnership 7  U
  Adjusted basis 10             partnership     10                                              Unrealized receivables   12
  Guaranteed payments      7

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