80 FR 68243 - Determination of Distributive Share When Partner's Interest Changes; Correction

DEPARTMENT OF THE TREASURY
Internal Revenue Service

Federal Register Volume 80, Issue 213 (November 4, 2015)

This document contains corrections to final regulations (TD 9728) that were published in the Federal Register on Monday, August 3, 2015 (80 FR 45865). The final regulations are regarding the determination of a partner's distributive share of partnership items of income, gain, loss, deduction, and credit when a partner's interest varies during a partnership taxable year.

[Federal Register Volume 80, Number 213 (Wednesday, November 4, 2015)]
[Rules and Regulations]
[Pages 68243-68244]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-28015]



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Federal Register / Vol. 80, No. 213 / Wednesday, November 4, 2015 / 
Rules and Regulations

[[Page 68243]]



DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9728]
RIN 1545-BD71


Determination of Distributive Share When Partner's Interest 
Changes; Correction

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Correcting amendment.

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SUMMARY: This document contains corrections to final regulations (TD 
9728) that were published in the Federal Register on Monday, August 3, 
2015 (80 FR 45865). The final regulations are regarding the 
determination of a partner's distributive share of partnership items of 
income, gain, loss, deduction, and credit when a partner's interest 
varies during a partnership taxable year.

DATES: This correction is effective November 4, 2015 and is applicable 
on or after August 3, 2015.

FOR FURTHER INFORMATION CONTACT: Benjamin H. Weaver of the Office of 
Associate Chief Counsel (Passthroughs and Special Industries at (202) 
317-6850 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    The final regulations (TD 9728) that are the subject of this 
correction are under section 706 of the Internal Revenue Code.

Need for Correction

    As published, the final regulations (TD 9728) contain errors that 
may prove to be misleading and are in need of clarification.

List of Subjects in 26 CFR Part 1

    Income taxes, reporting and recordkeeping requirements.

Correction of Publication

    Accordingly, 26 CFR part 1 is corrected by making the following 
correcting amendments:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 continues to read in 
part as follows:

    Authority: 26 U.S.C. 7805 * * *


0
Par. 2. Section 1.706-0 is amended by revising the entries of the table 
of contents for Sec.  1.706-1(b)(3)(iii), Sec.  1.706-2, Sec.  1.706-3, 
Sec.  1.706-4(a)(2), and Sec.  1.706-4(d)(1), and adding entries to 
Sec.  1.706-1(c)(6), and Sec.  1.706-4(c)(3)(i) and (ii). The revisions 
and additions read as follows:


Sec.  1.706-0  Table of contents.

* * * * *
Sec.  1.706-1 Taxable years of partner and partnership.

    (b) * * *
    (3) * * *
    (iii) Special de minimis rule.
* * * * *
    (c) * * *
    (6) Foreign taxes.
* * * * *
Sec.  1.706-2 Certain allocable cash basis items. [Reserved]
* * * * *
Sec.  1.706-3 Items attributable to interest in lower tier 
partnership. [Reserved]
Sec.  1.706-4 Determination of distributive share when a partner's 
interest varies.

    (a) * * *
    (2) Coordination with section 706(d)(2) and (3) and other Code 
sections.
* * * * *
    (c) * * *
    (3) * * *
    (i) Rules applicable to all partnerships.
    (ii) Publicly treated partnerships.
    (4) * * *
    (d)(1) Optional regular monthly or semimonthly interim closings.
* * * * *

0
Par. 3. Section 1.706-1 is amended by revising paragraph (c)(2)(ii) to 
read as follows:


Sec.  1.706-1  Taxable years of partner and partnership.

* * * * *
    (c) * * *
    (2) * * *
    (ii)
    Example.  H is a partner of a partnership having a taxable year 
ending December 31. Both H and his wife W are on a calendar year and 
file joint returns. H dies on March 31, 2016. Administration of the 
estate is completed and the estate, including the partnership 
interest, is distributed to W as legatee on November 30, 2016. Such 
distribution by the estate is not a sale or exchange of H's 
partnership interest. The taxable year of the partnership will close 
with respect to H on March 31, 2016, and H will include in his final 
return for his final taxable year (January 1, 2016, through March 
31, 2016) his distributive share of partnership items for that 
period under the rules of sections 706(d)(2), 706(d)(3), and Sec.  
1.706-4. W will include in her return for the taxable year ending 
December 31, 2016, her distributive share of partnership items for 
the period of April 1, 2016, through December 31, 2016, under the 
rules of sections 706(d)(2), 706(d)(3), and Sec.  1.706-4.
* * * * *

0
Par. 4. Section 1.706-2 is amended by revising the section heading to 
read as follows:


Sec.  1.706-2  Certain allocable cash to as is items. [Reserved]

0
Par. 5. Section 1.706-3 is amended by revising the section heading to 
read as follows:


Sec.  1.706-3  Items attributable to interest in lower tier 
partnership. [Reserved]

0
Par. 6. Section 1.706-4 is amended by revising paragraphs (a)(2) and 
(a)(3)(viii), the introductory text of paragraph (a)(4), and the third 
sentence of paragraph (g) to read as follows:


Sec.  1.706-4  Determination of distributive share when a partner's 
interest varies.

    (a) * * *
    (2) Coordination with sections 706(d)(2) and 706(d)(3) and other 
Code sections. Items subject to allocation under other rules, including 
sections 108(e)(8) and 108(i) (which provide special allocation rules 
for certain items from the discharge or retirement of indebtedness 
section), section 704(c) (relating to allocations with respect to 
certain contributed property), Sec.  1.704-3(a)(6) (relating to 
allocations with respect to revalued property), section 706(d)(2) 
(relating to the determination of partners' distributive shares of 
allocable cash basis items), and section 706(d)(3) (relating the 
determination of partners' distributive share of any item of an upper 
tier partnership attributable to a lower tier partnership), are not

[[Page 68244]]

subject to the rules of this section. In addition, the rules of this 
section do not apply in making allocation of book items pursuant to 
Sec.  1.704-1(b)(2)(iv)(e), (f), or (s). In all cases, all partnership 
items for each taxable year must be allocated among the partners, and 
no partnership items may be duplicated, regardless of the particular 
provision of section 706 (or other Code section) which applies, and 
regardless of the method or convention adopted by the partnership.
    (3) * * *
    (viii) Eighth, determine the partnership's proration periods, which 
are specific portions of a segment created by a variation for which the 
partnership chooses to apply the proration method. The first proration 
period in each segment begins at the beginning of the segment, and ends 
at the first time of the first variation within the segment for which 
the partnership selects the proration method. The next proration period 
begins immediately after the close of the prior proration period and 
ends at the time of the next variation for which the partnership 
selects the proration method. However, each proration period shall end 
no later than the close of the segment.
* * * * *
    (4)
    Example. At the beginning of 2017, PRS, a calendar year 
partnership, has three equal partners, A, B, and C. On April 16, 
2017, A sells 50% of its interest in PRS to new partner D. On August 
6, 2017, B sells 50% of its interest in PRS to new partner E. During 
2015, PRS earned $75,000 of ordinary income, incurred $33,000 of 
ordinary deductions, earned $12,000 of capital gain in the ordinary 
course of its business, and sustained $9,000 of capital loss in the 
ordinary course of its business. Within that year, PRS earned 
$60,000 of ordinary income, incurred $24,000 of ordinary deductions, 
earned $12,000 of capital gain, and sustained $6,000 of capital loss 
between January 1, 2017, and July 31, 2017, and PRS earned $15,000 
of gross ordinary income, incurred $9,000 of gross ordinary 
deductions, and sustained $3,000 of capital loss between August 1, 
2017, and December 31, 2017. None of PRS's items are extraordinary 
items within the meaning of paragraph (e)(2) of this section. 
Capital is a material income-producing factor for PRS. For 2017, PRS 
determines the distributive shares of A, B, C, D, and E as follows:
* * * * *
    (g) * * * For purposes of the immediately preceding sentence, an 
existing publicly traded partnership is a partnership described in 
section 7704(b) that was formed prior to April 14, 2009. * * *


Sec.  1.706-4  [Amended]

0
Par. 7. For each entry in Sec.  1.706-4 in the ``Section'' column, 
remove the language in ``Remove'' column from wherever it appears in 
the Example and add in its place the language in the ``Add'' column as 
set forth below:

------------------------------------------------------------------------
              Section                      Remove              Add
------------------------------------------------------------------------
Paragraph (a)(4) Example. (iii)....  2015.              2017.
Paragraph (a)(4) Example. (iv).....  2015.              2017.
Paragraph (a)(4) Example. (v)......  2015.              2017.
Paragraph (a)(4) Example. (vi).....  2015.              2017.
Paragraph (a)(4) Example. (vii)....  2015.              2017.
Paragraph (a)(4) Example. (viii)...  2015.              2017.
Paragraph (c)(4) Example. 1........  2015.              2016.
Paragraph (c)(4) Example. 1........  February 28,       February 29,
                                      2015.              2016.
Paragraph (c)(4) Example. 2........  2015.              2016.
Paragraph (d)(2) Example. (i)......  2015.              2016.
Paragraph (d)(2) Example. (ii).....  2015.              2016.
Paragraph (d)(2) Example. (iii)....  2015.              2016.
Paragraph (d)(2) Example. (iv).....  2015.              2016.
Paragraph (e)(4) Example. 1........  2015.              2016.
Paragraph (e)(4) Example. 2........  2015.              2016.
Paragraph (e)(4) Example. 3........  2015.              2016.
Paragraph (e)(4) Example. 4........  2015.              2016.
Paragraph (e)(4) Example. 5........  2015.              2016.
Paragraph (e)(4) Example. 6........  item.              items.
------------------------------------------------------------------------


Martin V. Franks,
Chief, Publications and Regulations Branch, Legal Processing Division, 
Associate Chief Counsel (Procedure and Administration).
[FR Doc. 2015-28015 Filed 11-3-15; 8:45 am]
 BILLING CODE 4830-01-P