26 U.S.C. § 7704 : US Code - Section 7704: Certain publicly traded partnerships treated as corporations

    (a) General rule
      For purposes of this title, except as provided in subsection (c),
    a publicly traded partnership shall be treated as a corporation.
    (b) Publicly traded partnership
      For purposes of this section, the term "publicly traded
    partnership" means any partnership if - 
        (1) interests in such partnership are traded on an established
      securities market, or
        (2) interests in such partnership are readily tradable on a
      secondary market (or the substantial equivalent thereof).
    (c) Exception for partnerships with passive-type income
      (1) In general
        Subsection (a) shall not apply to any publicly traded
      partnership for any taxable year if such partnership met the
      gross income requirements of paragraph (2) for such taxable year
      and each preceding taxable year beginning after December 31,
      1987, during which the partnership (or any predecessor) was in
      existence. For purposes of the preceding sentence, a partnership
      shall not be treated as being in existence during any period
      before the 1st taxable year in which such partnership (or a
      predecessor) was a publicly traded partnership.
      (2) Gross income requirements
        A partnership meets the gross income requirements of this
      paragraph for any taxable year if 90 percent or more of the gross
      income of such partnership for such taxable year consists of
      qualifying income.
      (3) Exception not to apply to certain partnerships which could
        qualify as regulated investment companies
        This subsection shall not apply to any partnership which would
      be described in section 851(a) if such partnership were a
      domestic corporation. To the extent provided in regulations, the
      preceding sentence shall not apply to any partnership a principal
      activity of which is the buying and selling of commodities (not
      described in section 1221(a)(1)), or options, futures, or
      forwards with respect to commodities.
    (d) Qualifying income
      For purposes of this section - 
      (1) In general
        Except as otherwise provided in this subsection, the term
      "qualifying income" means - 
          (A) interest,
          (B) dividends,
          (C) real property rents,
          (D) gain from the sale or other disposition of real property
        (including property described in section 1221(a)(1)),
          (E) income and gains derived from the exploration,
        development, mining or production, processing, refining,
        transportation (including pipelines transporting gas, oil, or
        products thereof), or the marketing of any mineral or natural
        resource (including fertilizer, geothermal energy, and timber),
        industrial source carbon dioxide, or the transportation or
        storage of any fuel described in subsection (b), (c), (d), or
        (e) of section 6426, or any alcohol fuel defined in section
        6426(b)(4)(A) or any biodiesel fuel as defined in section
        40A(d)(1),
          (F) any gain from the sale or disposition of a capital asset
        (or property described in section 1231(b)) held for the
        production of income described in any of the foregoing
        subparagraphs of this paragraph, and
          (G) in the case of a partnership described in the second
        sentence of subsection (c)(3), income and gains from
        commodities (not described in section 1221(a)(1)) or futures,
        forwards, and options with respect to commodities.

      For purposes of subparagraph (E), the term "mineral or natural
      resource" means any product of a character with respect to which
      a deduction for depletion is allowable under section 611; except
      that such term shall not include any product described in
      subparagraph (A) or (B) of section 613(b)(7).
      (2) Certain interest not qualified
        Interest shall not be treated as qualifying income if - 
          (A) such interest is derived in the conduct of a financial or
        insurance business, or
          (B) such interest would be excluded from the term "interest"
        under section 856(f).
      (3) Real property rent
        The term "real property rent" means amounts which would qualify
      as rent from real property under section 856(d) if - 
          (A) such section were applied without regard to paragraph
        (2)(C) thereof (relating to independent contractor
        requirements), and
          (B) stock owned, directly or indirectly, by or for a partner
        would not be considered as owned under section 318(a)(3)(A) by
        the partnership unless 5 percent or more (by value) of the
        interests in such partnership are owned, directly or
        indirectly, by or for such partner.
      (4) Certain income qualifying under regulated investment company
        or real estate trust provisions
        The term "qualifying income" also includes any income which
      would qualify under section 851(b)(2)(A) or 856(c)(2).
      (5) Special rule for determining gross income from certain real
        property sales
        In the case of the sale or other disposition of real property
      described in section 1221(a)(1), gross income shall not be
      reduced by inventory costs.
    (e) Inadvertent terminations
      If - 
        (1) a partnership fails to meet the gross income requirements
      of subsection (c)(2),
        (2) the Secretary determines that such failure was inadvertent,
        (3) no later than a reasonable time after the discovery of such
      failure, steps are taken so that such partnership once more meets
      such gross income requirements, and
        (4) such partnership agrees to make such adjustments (including
      adjustments with respect to the partners) or to pay such amounts
      as may be required by the Secretary with respect to such period,

    then, notwithstanding such failure, such entity shall be treated as
    continuing to meet such gross income requirements for such period.
    (f) Effect of becoming corporation
      As of the 1st day that a partnership is treated as a corporation
    under this section, for purposes of this title, such partnership
    shall be treated as - 
        (1) transferring all of its assets (subject to its liabilities)
      to a newly formed corporation in exchange for the stock of the
      corporation, and
        (2) distributing such stock to its partners in liquidation of
      their interests in the partnership.
    (g) Exception for electing 1987 partnerships
      (1) In general
        Subsection (a) shall not apply to an electing 1987 partnership.
      (2) Electing 1987 partnership
        For purposes of this subsection, the term "electing 1987
      partnership" means any publicly traded partnership if - 
          (A) such partnership is an existing partnership (as defined
        in section 10211(c)(2) of the Revenue Reconciliation Act of
        1987),
          (B) subsection (a) has not applied (and without regard to
        subsection (c)(1) would not have applied) to such partnership
        for all prior taxable years beginning after December 31, 1987,
        and before January 1, 1998, and
          (C) such partnership elects the application of this
        subsection, and consents to the application of the tax imposed
        by paragraph (3), for its first taxable year beginning after
        December 31, 1997.

      A partnership which, but for this sentence, would be treated as
      an electing 1987 partnership shall cease to be so treated (and
      the election under subparagraph (C) shall cease to be in effect)
      as of the 1st day after December 31, 1997, on which there has
      been an addition of a substantial new line of business with
      respect to such partnership.
      (3) Additional tax on electing partnerships
        (A) Imposition of tax
          There is hereby imposed for each taxable year on the income
        of each electing 1987 partnership a tax equal to 3.5 percent of
        such partnership's gross income for the taxable year from the
        active conduct of trades and businesses by the partnership.
        (B) Adjustments in the case of tiered partnerships
          For purposes of this paragraph, in the case of a partnership
        which is a partner in another partnership, the gross income
        referred to in subparagraph (A) shall include the partnership's
        distributive share of the gross income of such other
        partnership from the active conduct of trades and businesses of
        such other partnership. A similar rule shall apply in the case
        of lower-tiered partnerships.
        (C) Treatment of tax
          For purposes of this title, the tax imposed by this paragraph
        shall be treated as imposed by chapter 1 other than for
        purposes of determining the amount of any credit allowable
        under chapter 1 and shall be paid by the partnership. Section
        6655 shall be applied to such partnership with respect to such
        tax in the same manner as if the partnership were a
        corporation, such tax were imposed by section 11, and
        references in such section to taxable income were references to
        the gross income referred to in subparagraph (A).
      (4) Election
        An election and consent under this subsection shall apply to
      the taxable year for which made and all subsequent taxable years
      unless revoked by the partnership. Such revocation may be made
      without the consent of the Secretary, but, once so revoked, may
      not be reinstated.