26 U.S.C. § 7704: Certain publicly traded partnerships treated as corporations

For purposes of this title, except as provided in subsection (c), a publicly traded partnership shall be treated as a corporation. interests in such partnership are traded on an established securities market, or interests in such partnership are readily tradable on a secondary market (or the substantial equivalent thereof). 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. 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. 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. interest, dividends, real property rents, gain from the sale or other disposition of real property (including property described in section 1221(a)(1)), 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), or industrial source carbon dioxide, any fuel described in subsection (b), (c), (d), (e), or (k) 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) or sustainable aviation fuel as defined in section 40B(d)(1), or liquified hydrogen or compressed hydrogen, the generation, availability for such generation, or storage of electric power at such facility, or the capture of carbon dioxide by such facility, the production of electricity from any advanced nuclear facility (as defined in section 45J(d)(2)), the production of electricity or thermal energy exclusively using a qualified energy resource described in subparagraph (D) or (H) of section 45(c)(1), or the operation of energy property described in clause (iii) or (vii) of section 48(a)(3)(A) (determined without regard to any requirement under such section with respect to the date on which construction of property begins). 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 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. such interest is derived in the conduct of a financial or insurance business, or such interest would be excluded from the term “interest” under section 856(f). such section were applied without regard to paragraph (2)(C) thereof (relating to independent contractor requirements), and 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. The term “qualifying income” also includes any income which would qualify under section 851(b)(2)(A) or 856(c)(2). 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. a partnership fails to meet the gross income requirements of subsection (c)(2), the Secretary determines that such failure was inadvertent, 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 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, transferring all of its assets (subject to its liabilities) to a newly formed corporation in exchange for the stock of the corporation, and distributing such stock to its partners in liquidation of their interests in the partnership. Subsection (a) shall not apply to an electing 1987 partnership. such partnership is an existing partnership (as defined in section 10211(c)(2) of the Revenue Reconciliation Act of 1987), 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 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 . 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. 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. 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. except as provided in subparagraph (B), to taxable years beginning after December 31, 1987 , or in the case of an existing partnership, to taxable years beginning after December 31, 1997 . such partnership was a publicly traded partnership on December 17, 1987 , a registration statement indicating that such partnership was to be a publicly traded partnership was filed with the Securities and Exchange Commission with respect to such partnership on or before such date, or with respect to such partnership, an application was filed with a State regulatory commission on or before such date seeking permission to restructure a portion of a corporation as a publicly traded partnership. A partnership which, but for this subparagraph, would be treated as an existing partnership shall cease to be treated as an existing partnership as of the 1st day after December 17, 1987 , on which there has been an addition of a substantial new line of business with respect to such partnership. December 31, 1997 , or the day (if any) as of which such partnership ceases to be treated as an existing partnership by reason of subparagraph (B).”