(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
(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 -
(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
(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
(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
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
(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
(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
(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).
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.