US Code

Public Law 119-73 (01/23/2026)

26 U.S.C. § 707

Transactions between partner and partnership

(a)

Partner not acting in capacity as partner

(1)

In general

If a partner engages in a transaction with a partnership other than in his capacity as a member of such partnership, the transaction shall, except as otherwise provided in this section, be considered as occurring between the partnership and one who is not a partner.

(2)

Treatment of payments to partners for property or services

Except as provided by the Secretary—
(A)

Treatment of certain services and transfers of property

If—
(i)
a partner performs services for a partnership or transfers property to a partnership,
(ii)
there is a related direct or indirect allocation and distribution to such partner, and
(iii)
the performance of such services (or such transfer) and the allocation and distribution, when viewed together, are properly characterized as a transaction occurring between the partnership and a partner acting other than in his capacity as a member of the partnership,
such allocation and distribution shall be treated as a transaction described in paragraph (1).
(B)

Treatment of certain property transfers

If—
(i)
there is a direct or indirect transfer of money or other property by a partner to a partnership,
(ii)
there is a related direct or indirect transfer of money or other property by the partnership to such partner (or another partner), and
(iii)
the transfers described in clauses (i) and (ii), when viewed together, are properly characterized as a sale or exchange of property,
such transfers shall be treated either as a transaction described in paragraph (1) or as a transaction between 2 or more partners acting other than in their capacity as members of the partnership.
(b)

Certain sales or exchanges of property with respect to controlled partnerships

(1)

Losses disallowed

No deduction shall be allowed in respect of losses from sales or exchanges of property (other than an interest in the partnership), directly or indirectly, between—
(A)
a partnership and a person owning, directly or indirectly, more than 50 percent of the capital interest, or the profits interest, in such partnership, or
(B)
two partnerships in which the same persons own, directly or indirectly, more than 50 percent of the capital interests or profits interests.
In the case of a subsequent sale or exchange by a transferee described in this paragraph, section 267(d) shall be applicable as if the loss were disallowed under section 267(a)(1). For purposes of section 267(a)(2), partnerships described in subparagraph (B) of this paragraph shall be treated as persons specified in section 267(b).
(2)

Gains treated as ordinary income

In the case of a sale or exchange, directly or indirectly, of property, which in the hands of the transferee, is property other than a capital asset as defined in section 1221—
(A)
between a partnership and a person owning, directly or indirectly, more than 50 percent of the capital interest, or profits interest, in such partnership, or
(B)
between two partnerships in which the same persons own, directly or indirectly, more than 50 percent of the capital interests or profits interests,
any gain recognized shall be considered as ordinary income.
(3)

Ownership of a capital or profits interest

For purposes of paragraphs (1) and (2) of this subsection, the ownership of a capital or profits interest in a partnership shall be determined in accordance with the rules for constructive ownership of stock provided in section 267(c) other than paragraph (3) of such section.

(c)

Guaranteed payments

To the extent determined without regard to the income of the partnership, payments to a partner for services or the use of capital shall be considered as made to one who is not a member of the partnership, but only for the purposes of section 61(a) (relating to gross income) and, subject to section 263, for purposes of section 162(a) (relating to trade or business expenses).

Aug. 16, 1954, ch. 73668A Stat. 243Pub. L. 94–455, title II, § 213(b)(3)90 Stat. 1547Pub. L. 98–369, div. A, title I, § 73(a)98 Stat. 591Pub. L. 99–514, title VI, § 642(a)(2)100 Stat. 2284Pub. L. 119–21, title VII, § 70602(a)139 Stat. 284(, ; , title XIX, § 1901(b)(3)(C), , , 1792; , , ; , title XVIII, §§ 1805(b), 1812(c)(3)(A), (B), , , 2810, 2834; , , .)

Editorial Notes

Amendments

Pub. L. 119–212025—Subsec. (a)(2). substituted “Except as provided” for “Under regulations prescribed” in introductory provisions.

Pub. L. 99–514, § 1805(b)1986—Subsec. (a)(2)(B)(iii). , substituted “sale or exchange of property” for “sale of property”.

Pub. L. 99–514, § 1812(c)(3)(B)Subsec. (b)(1). , inserted at end “For purposes of section 267(a)(2), partnerships described in subparagraph (B) of this paragraph shall be treated as persons specified in section 267(b).”

Pub. L. 99–514, § 1812(c)(3)(A)Subsec. (b)(1)(A). , substituted “a person” for “a partner”.

Pub. L. 99–514, § 1812(c)(3)(A)Subsec. (b)(2)(A). , substituted “a person” for “a partner”.

Pub. L. 99–514, § 642(a)(2), substituted “50 percent” for “80 percent”.

Pub. L. 99–514, § 642(a)(2)Subsec. (b)(2)(B). , substituted “50 percent” for “80 percent”.

Pub. L. 98–3691984—Subsec. (a). designated existing provisions as par. (1) and added par. (2).

Pub. L. 94–455, § 1901(b)(3)(C)1976—Subsec. (b)(2). , substituted “as ordinary income” for “as gain from the sale or exchange of property other than a capital asset”.

Pub. L. 94–455, § 213(b)(3)Subsec. (c). , substituted “and, subject to section 263, for purposes of section 162(a)” for “and section 162(a)”.

Statutory Notes and Related Subsidiaries

Effective Date of 2025 Amendment

Pub. L. 119–21, title VII, § 70602(b)139 Stat. 284

“The amendment made by this section [amending this section] shall apply to services performed, and property transferred, after the date of the enactment of this Act [].”
, , , provided that:

Effective Date of 1986 Amendment

section 642(a)(2) of Pub. L. 99–514section 642(c) of Pub. L. 99–514section 1239 of this titleAmendment by applicable to sales after , in taxable years ending after such date, but not applicable to sales made after , which are made pursuant to a binding contract in effect on , and at all times thereafter, see , set out as a note under .

Pub. L. 99–514Pub. L. 98–369, div. Asection 1881 of Pub. L. 99–514section 48 of this titleAmendment by sections 1805(b) and 1812(c)(3)(B) of effective, except as otherwise provided, as if included in the provisions of the Tax Reform Act of 1984, , to which such amendment relates, see , set out as a note under .

Pub. L. 99–514, title XVIII, § 1812(c)(3)(A)100 Stat. 2834, , , provided that the amendment made by that section is effective with respect to sales or exchanges after .

Effective Date of 1984 Amendment

Pub. L. 98–369, div. A, title I, § 73(b)98 Stat. 592Pub. L. 99–514, § 2100 Stat. 2095

“(1)

In general .—

The amendment made by subsection (a) [amending this section] shall apply—
“(A)
in the case of arrangements described in section 707(a)(2)(A) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as amended by subsection (a)), to services performed or property transferred after , and
“(B)
in the case of transfers described in section 707(a)(2)(B) of such Code (as so amended), to property transferred after .
“(2)

Binding contract exception .—

The amendment made by subsection (a) shall not apply to a transfer of property described in section 707(a)(2)(B)(i) if such transfer is pursuant to a binding contract in effect on , and at all times thereafter before the transfer.
“(3)

Exception for certain transfers .—

The amendment made by subsection (a) shall not apply to a transfer of property described in section 707(a)(2)(B)(i) that is made before , if—
“(A)
such transfer was proposed in a written private offering memorandum circulated before ;
“(B)
the out-of-pocket costs incurred with respect to such offering exceeded $250,000 as of ;
“(C)
the encumbrances placed on such property in anticipation of such transfer all constitute obligations for which neither the partnership nor any partner is liable; and
“(D)
the transferor of such property is the sole general partner of the partnership.”
, , , as amended by , , , provided that:

Effective Date of 1976 Amendment

section 213(b)(3) of Pub. L. 94–455section 213(f)(1) of Pub. L. 94–455section 709 of this titleAmendment by applicable in the case of partnership taxable years beginning after , see , set out as an Effective Date note under .

section 1901(b)(3)(C) of Pub. L. 94–455section 1901(d) of Pub. L. 94–455section 2 of this titleAmendment by effective for taxable years beginning after , see , set out as a note under .

Rule of Construction

Pub. L. 119–21, title VII, § 70602(c)139 Stat. 284

“Nothing in this section [amending this section and enacting provisions set out as a note above], or the amendments made by this section, shall be construed to create any inference with respect to the proper treatment under section 707(a) of the Internal Revenue Code of 1986 with respect to payments from a partnership to a partner for services performed, or property transferred, on or before the date of the enactment of this Act [].”
, , , provided that:

Plan Amendments Not Required Until January 1, 1989

Pub. L. 99–514section 1140 of Pub. L. 99–514section 401 of this titleFor provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§ 1101–1147 and 1171–1177] or title XVIII [§§ 1800–1899A] of require an amendment to any plan, such plan amendment shall not be required to be made before the first plan year beginning on or after , see , as amended, set out as a note under .