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Sec. 705. Determination Of Basis Of Partner's Interest

I.R.C. § 705(a) General Rule
The adjusted basis of a partner's interest in a partnership shall, except as provided in subsection (b), be the basis of such interest determined under section 722 (relating to contributions to a partnership) or section 742 (relating to transfers of partnership interests)—
I.R.C. § 705(a)(1)
increased by the sum of his distributive share for the taxable year and prior taxable years of—
I.R.C. § 705(a)(1)(A)
taxable income of the partnership as determined under section 703(a),
I.R.C. § 705(a)(1)(B)
income of the partnership exempt from tax under this title, and
I.R.C. § 705(a)(1)(C)
the excess of the deductions for depletion over the basis of the property subject to depletion;
I.R.C. § 705(a)(2)
decreased (but not below zero) by distributions by the partnership as provided in section 733 and by the sum of his distributive share for the taxable year and prior taxable years of—
I.R.C. § 705(a)(2)(A)
losses of the partnership, and
I.R.C. § 705(a)(2)(B)
expenditures of the partnership not deductible in computing its taxable income and not properly chargeable to capital account; and
I.R.C. § 705(a)(3)
decreased (but not below zero) by the amount of the partner's deduction for depletion for any partnership oil and gas property to the extent such deduction does not exceed the proportionate share of the adjusted basis of such property allocated to such partner under section 613A(c)(7)(D).
I.R.C. § 705(b) Alternative Rule
The Secretary shall prescribe by regulations the circumstances under which the adjusted basis of a partner's interest in a partnership may be determined by reference to his proportionate share of the adjusted basis of partnership property upon a termination of the partnership.
(Aug. 16, 1954, ch. 736, 68A Stat. 242; Oct. 4, 1976, Pub. L. 94-455, title XIX, 1906(b)(13)(A), title XXI, 2115(c)(3), 90 Stat. 1834, 1909; July 18, 1984, Pub. L. 98-369, div. A, title VII, 722(e)(1), 98 Stat. 974.)
BACKGROUND NOTES
AMENDMENTS
1984--Subsec. (a)(3). Pub. L. 98-369 substituted “for any partnership oil and gas property to the extent such deduction does not exceed the proportionate share of the adjusted basis of such property allocated to such partner under section 613A(c)(7)(D)” for “under section 611 with respect to oil and gas wells”.
1976--Subsec. (a)(3). Pub. L. 94-455, 2115(c)(3), added par. (3).
Subsec. (b). Pub. L. 94-455, 1906(b)(13)(A), struck out “or his delegate” after “Secretary”.
EFFECTIVE DATE OF 1984 AMENDMENT
Section 722(e)(3)(A) of Pub. L. 98-369 provided that: “The amendment made by paragraph (1) [amending this section] shall take effect on January 1, 1975.”
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 2115(c)(3) of Pub. L. 94-455 effective on Jan. 1, 1975, and applicable to taxable years ending after Dec. 31, 1974, see section 2115(f) of Pub. L. 94-455, set out as a note under section 613A of this title.
TAX TREATMENT OF TARGETED EIDL ADVANCES
Section 9672 of Pub. L. 117-2, provided that:
“For purposes of the Internal Revenue Code of 1986—
“(1) amounts received from the Administrator of the Small Business Administration in the form of a targeted EIDL advance under section 331 of the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (title III of division N of Public Law 116–260) shall not be included in the gross income of the person that receives such amounts,
“(2) no deduction shall be denied, no tax attribute shall be reduced, and no basis increase shall be denied, by reason of the exclusion from gross income provided by paragraph (1), and
“(3) in the case of a partnership or S corporation that receives such amounts—
“(A) any amount excluded from income by reason of paragraph (1) shall be treated as tax exempt income for purposes of sections 705 and 1366 of the Internal Revenue Code of 1986, and
“(B) the Secretary of the Treasury (or the Secretary's delegate) shall prescribe rules for determining a partner's distributive share of any amount described in subparagraph (A) for purposes of section 705 of the Internal Revenue Code of 1986.”
TAX TREATMENT OF RESTAURANT REVITALIZATION GRANTS
Section 9673 of Pub. L. 117-2, provided that:
“For purposes of the Internal Revenue Code of 1986—
“(1) amounts received from the Administrator of the Small Business Administration in the form of a restaurant revitalization grant under section 5003 shall not be included in the gross income of the person that receives such amounts,
“(2) no deduction shall be denied, no tax attribute shall be reduced, and no basis increase shall be denied, by reason of the exclusion from gross income provided by paragraph (1), and
“(3) in the case of a partnership or S corporation that receives such amounts—
“(A) except as otherwise provided by the Secretary of the Treasury (or the Secretary's delegate), any amount excluded from income by reason of paragraph (1) shall be treated as tax exempt income for purposes of sections 705 and 1366 of the Internal Revenue Code of 1986, and
“(B) the Secretary of the Treasury (or the Secretary's delegate) shall prescribe rules for determining a partner's distributive share of any amount described in subparagraph (A) for purposes of section 705 of the Internal Revenue Code of 1986.”
CLARIFICATION OF TAX TREATMENT OF CERTAIN LOAN FORGIVENESS AND OTHER BUSINESS FINANCIAL ASSISTANCE
Section 278 of Pub. L. 116-260, Div. N, provided that:
“(a) UNITED STATES TREASURY PROGRAM MANAGEMENT AUTHORITY.—For purposes of the Internal Revenue Code of 1986—
“(1) no amount shall be included in the gross income of a borrower by reason of forgiveness of indebtedness described in section 1109(d)(2)(D) of the CARES Act,
“(2) no deduction shall be denied, no tax attribute shall be reduced, and no basis increase shall be denied, by reason of the exclusion from gross income provided by paragraph (1), and
“(3) in the case of a borrower that is a partnership or S corporation—
“(A) any amount excluded from income by reason of paragraph (1) shall be treated as tax exempt income for purposes of sections 705 and 1366 of the Internal Revenue Code of 1986, and
“(B) except as provided by the Secretary of the Treasury (or the Secretary's delegate), any increase in the adjusted basis of a partner's interest in a partnership under section 705 of the Internal Revenue Code of 1986 with respect to any amount described in subparagraph (A) shall equal the partner's distributive share of deductions resulting from costs giving rise to forgiveness described in section 1109(d)(2)(D) of the CARES Act.
“(b) EMERGENCY EIDL GRANTS AND TARGETED EIDL ADVANCES.—For purposes of the Internal Revenue Code of 1986—
“(1) any advance described in section 1110(e) of the CARES Act or any funding under section 331 of the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act shall not be included in the gross income of the person that receives such advance or funding,
“(2) no deduction shall be denied, no tax attribute shall be reduced, and no basis increase shall be denied, by reason of the exclusion from gross income provided by paragraph (1), and
“(3) in the case of a partnership or S corporation that receives such advance or funding—
“(A) any amount excluded from income by reason of paragraph (1) shall be treated as tax exempt income for purposes of sections 705 and 1366 of the Internal Revenue Code of 1986, and
“(B) the Secretary of the Treasury (or the Secretary's delegate) shall prescribe rules for determining a partner's distributive share of any amount described in subparagraph (A) for purposes of section 705 of the Internal Revenue Code of 1986.
“(c) SUBSIDY FOR CERTAIN LOAN PAYMENTS.—For purposes of the Internal Revenue Code of 1986—
“(1) any payment described in section 1112(c) of the CARES Act shall not be included in the gross income of the person on whose behalf such payment is made,
“(2) no deduction shall be denied, no tax attribute shall be reduced, and no basis increase shall be denied, by reason of the exclusion from gross income provided by paragraph (1), and
“(3) in the case of a partnership or S corporation on whose behalf of a payment described in section 1112(c) of the CARES Act is made—
“(A) any amount excluded from income by reason of paragraph (1) shall be treated as tax exempt income for purposes of sections 705 and 1366 of the Internal Revenue Code of 1986, and
“(B) except as provided by the Secretary of the Treasury (or the Secretary's delegate), any increase in the adjusted basis of a partner's interest in a partnership under section 705 of the Internal Revenue Code of 1986 with respect to any amount described in subparagraph (A) shall equal the sum of the partner's distributive share of deductions resulting from interest and fees described in section 1112(c) of the CARES Act and the partner's share, as determined under section 752 of the Internal Revenue Code of 1986, of principal described in section 1112(c) of the CARES Act.
“(d) GRANTS FOR SHUTTERED VENUE OPERATORS.— For purposes of the Internal Revenue Code of 1986—
“(1) any grant made under section 324 of the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act shall not be included in the gross income of the person that receives such grant,
“(2) no deduction shall be denied, no tax attribute shall be reduced, and no basis increase shall be denied, by reason of the exclusion from gross income provided by paragraph (1), and
“(3) in the case of a partnership or S corporation that receives such grant—
“(A) any amount excluded from income by reason of paragraph (1) shall be treated as tax exempt income for purposes of sections 705 and 1366 of the Internal Revenue Code of 1986, and
“(B) the Secretary of the Treasury (or the Secretary's delegate) shall prescribe rules for determining a partner's distributive share of any amount described in subparagraph (A) for purposes of section 705 of the Internal Revenue Code of 1986.
“(e) EFFECTIVE DATES.—
“(1) IN GENERAL.—Except as otherwise provided in this subsection, subsections (a), (b), and (c) shall apply to taxable years ending after the date of the enactment of the CARES Act.
“(2) GRANTS FOR SHUTTERED VENUE OPERATORS; TARGETED EIDL ADVANCES.—Subsection (d), and so much of subsection (b) as relates to funding under section 331 of the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act, shall apply to taxable years ending after the date of the enactment of this Act.”