TITLE 26 - US CODE - PART IV - SPECIAL RULES FOR ELECTING LARGE PARTNERSHIPS

26 USC 771 - Application of subchapter to electing large partnerships

The preceding provisions of this subchapter to the extent inconsistent with the provisions of this part shall not apply to an electing large partnership and its partners.

26 USC 772 - Simplified flow-through

(a) General rule 
In determining the income tax of a partner of an electing large partnership, such partner shall take into account separately such partners distributive share of the partnerships
(1) taxable income or loss from passive loss limitation activities,
(2) taxable income or loss from other activities,
(3) net capital gain (or net capital loss)
(A) to the extent allocable to passive loss limitation activities, and
(B) to the extent allocable to other activities,
(4) tax-exempt interest,
(5) applicable net AMT adjustment separately computed for
(A) passive loss limitation activities, and
(B) other activities,
(6) general credits,
(7) low-income housing credit determined under section 42,
(8) rehabilitation credit determined under section 47,
(9) foreign income taxes, and
(10) other items to the extent that the Secretary determines that the separate treatment of such items is appropriate.
(b) Separate computations 
In determining the amounts required under subsection (a) to be separately taken into account by any partner, this section and section 773 shall be applied separately with respect to such partner by taking into account such partners distributive share of the items of income, gain, loss, deduction, or credit of the partnership.
(c) Treatment at partner level 

(1) In general 
Except as provided in this subsection, rules similar to the rules of section 702 (b) shall apply to any partners distributive share of the amounts referred to in subsection (a).
(2) Income or loss from passive loss limitation activities 
For purposes of this chapter, any partners distributive share of any income or loss described in subsection (a)(1) shall be treated as an item of income or loss (as the case may be) from the conduct of a trade or business which is a single passive activity (as defined in section 469). A similar rule shall apply to a partners distributive share of amounts referred to in paragraphs (3)(A) and (5)(A) of subsection (a).
(3) Income or loss from other activities 

(A) In general 
For purposes of this chapter, any partners distributive share of any income or loss described in subsection (a)(2) shall be treated as an item of income or expense (as the case may be) with respect to property held for investment.
(B) Deductions for loss not subject to section 67 
The deduction under section 212 for any loss described in subparagraph (A) shall not be treated as a miscellaneous itemized deduction for purposes of section 67.
(4) Treatment of net capital gain or loss 
For purposes of this chapter, any partners distributive share of any gain or loss described in subsection (a)(3) shall be treated as a long-term capital gain or loss, as the case may be.
(5) Minimum tax treatment 
In determining the alternative minimum taxable income of any partner, such partners distributive share of any applicable net AMT adjustment shall be taken into account in lieu of making the separate adjustments provided in sections 56, 57, and 58 with respect to the items of the partnership. Except as provided in regulations, the applicable net AMT adjustment shall be treated, for purposes of section 53, as an adjustment or item of tax preference not specified in section 53 (d)(1)(B)(ii).
(6) General credits 
A partners distributive share of the amount referred to in paragraph (6) of subsection (a) shall be taken into account as a current year business credit.
(d) Operating rules 
For purposes of this section
(1) Passive loss limitation activity 
The term passive loss limitation activity means
(A) any activity which involves the conduct of a trade or business, and
(B) any rental activity.

For purposes of the preceding sentence, the term trade or business includes any activity treated as a trade or business under paragraph (5) or (6) of section 469 (c).

(2) Tax-exempt interest 
The term tax-exempt interest means interest excludable from gross income under section 103.
(3) Applicable net AMT adjustment 

(A) In general 
The applicable net AMT adjustment is
(i) with respect to taxpayers other than corporations, the net adjustment determined by using the adjustments applicable to individuals, and
(ii) with respect to corporations, the net adjustment determined by using the adjustments applicable to corporations.
(B) Net adjustment 
The term net adjustment means the net adjustment in the items attributable to passive loss activities or other activities (as the case may be) which would result if such items were determined with the adjustments of sections 56, 57, and 58.
(4) Treatment of certain separately stated items 

(A) Exclusion for certain purposes 
In determining the amounts referred to in paragraphs (1) and (2) of subsection (a), any net capital gain or net capital loss (as the case may be), and any item referred to in subsection (a)(11), shall be excluded.
(B) Allocation rules 
The net capital gain shall be treated
(i) as allocable to passive loss limitation activities to the extent the net capital gain does not exceed the net capital gain determined by only taking into account gains and losses from sales and exchanges of property used in connection with such activities, and
(ii) as allocable to other activities to the extent such gain exceeds the amount allocated under clause (i).

A similar rule shall apply for purposes of allocating any net capital loss.

(C) Net capital loss 
The term net capital loss means the excess of the losses from sales or exchanges of capital assets over the gains from sales or exchange of capital assets.
(5) General credits 
The term general credits means any credit other than the low-income housing credit, the rehabilitation credit, and the foreign tax credit.
(6) Foreign income taxes 
The term foreign income taxes means taxes described in section 901 which are paid or accrued to foreign countries and to possessions of the United States.
(e) Special rule for unrelated business tax 
In the case of a partner which is an organization subject to tax under section 511, such partners distributive share of any items shall be taken into account separately to the extent necessary to comply with the provisions of section 512 (c)(1).
(f) Special rules for applying passive loss limitations 
If any person holds an interest in an electing large partnership other than as a limited partner
(1) paragraph (2) of subsection (c) shall not apply to such partner, and
(2) such partners distributive share of the partnership items allocable to passive loss limitation activities shall be taken into account separately to the extent necessary to comply with the provisions of section 469.

The preceding sentence shall not apply to any items allocable to an interest held as a limited partner.

26 USC 773 - Computations at partnership level

(a) General rule 

(1) Taxable income 
The taxable income of an electing large partnership shall be computed in the same manner as in the case of an individual except that
(A) the items described in section 772 (a) shall be separately stated, and
(B) the modifications of subsection (b) shall apply.
(2) Elections 
All elections affecting the computation of the taxable income of an electing large partnership or the computation of any credit of an electing large partnership shall be made by the partnership; except that the election under section 901, and any election under section 108, shall be made by each partner separately.
(3) Limitations, etc. 

(A) In general 
Except as provided in subparagraph (B), all limitations and other provisions affecting the computation of the taxable income of an electing large partnership or the computation of any credit of an electing large partnership shall be applied at the partnership level (and not at the partner level).
(B) Certain limitations applied at partner level 
The following provisions shall be applied at the partner level (and not at the partnership level):
(i) Section 68 (relating to overall limitation on itemized deductions).
(ii) Sections 49 and 465 (relating to at risk limitations).
(iii) Section 469 (relating to limitation on passive activity losses and credits).
(iv) Any other provision specified in regulations.
(4) Coordination with other provisions 
Paragraphs (2) and (3) shall apply notwithstanding any other provision of this chapter other than this part.
(b) Modifications to determination of taxable income 
In determining the taxable income of an electing large partnership
(1) Certain deductions not allowed 
The following deductions shall not be allowed:
(A) The deduction for personal exemptions provided in section 151.
(B) The net operating loss deduction provided in section 172.
(C) The additional itemized deductions for individuals provided in part VII of subchapter B (other than section 212 thereof).
(2) Charitable deductions 
In determining the amount allowable under section 170, the limitation of section 170 (b)(2) shall apply.
(3) Coordination with section 67 
In lieu of applying section 67, 70 percent of the amount of the miscellaneous itemized deductions shall be disallowed.
(c) Special rules for income from discharge of indebtedness 
If an electing large partnership has income from the discharge of any indebtedness
(1) such income shall be excluded in determining the amounts referred to in section 772 (a), and
(2) in determining the income tax of any partner of such partnership
(A) such income shall be treated as an item required to be separately taken into account under section 772 (a), and
(B) the provisions of section 108 shall be applied without regard to this part.

26 USC 774 - Other modifications

(a) Treatment of certain optional adjustments, etc. 
In the case of an electing large partnership
(1) computations under section 773 shall be made without regard to any adjustment under section 743 (b) or 108 (b), but
(2) a partners distributive share of any amount referred to in section 772 (a) shall be appropriately adjusted to take into account any adjustment under section 743 (b) or 108 (b) with respect to such partner.
(b) Credit recapture determined at partnership level 

(1) In general 
In the case of an electing large partnership
(A) any credit recapture shall be taken into account by the partnership, and
(B) the amount of such recapture shall be determined as if the credit with respect to which the recapture is made had been fully utilized to reduce tax.
(2) Method of taking recapture into account 
An electing large partnership shall take into account a credit recapture by reducing the amount of the appropriate current year credit to the extent thereof, and if such recapture exceeds the amount of such current year credit, the partnership shall be liable to pay such excess.
(3) Dispositions not to trigger recapture 
No credit recapture shall be required by reason of any transfer of an interest in an electing large partnership.
(4) Credit recapture 
For purposes of this subsection, the term credit recapture means any increase in tax under section 42 (j) or 50 (a).
(c) Partnership not terminated by reason of change in ownership 
Subparagraph (B) of section 708 (b)(1) shall not apply to an electing large partnership.
(d) Partnership entitled to certain credits 
The following shall be allowed to an electing large partnership and shall not be taken into account by the partners of such partnership:
(1) The credit provided by section 34.
(2) Any credit or refund under section 852 (b)(3)(D) or 857 (b)(3)(D).
(e) Treatment of REMIC residuals 
For purposes of applying section 860E (e)(6) to any electing large partnership
(1) all interests in such partnership shall be treated as held by disqualified organizations,
(2) in lieu of applying subparagraph (C) of section 860E (e)(6), the amount subject to tax under section 860E (e)(6) shall be excluded from the gross income of such partnership, and
(3) subparagraph (D) of section 860E (e)(6) shall not apply.
(f) Special rules for applying certain installment sale rules 
In the case of an electing large partnership
(1) the provisions of sections 453 (l)(3) and 453A shall be applied at the partnership level, and
(2) in determining the amount of interest payable under such sections, such partnership shall be treated as subject to tax under this chapter at the highest rate of tax in effect under section 1 or 11.

26 USC 775 - Electing large partnership defined

(a) General rule 
For purposes of this part
(1) In general 
The term electing large partnership means, with respect to any partnership taxable year, any partnership if
(A) the number of persons who were partners in such partnership in the preceding partnership taxable year equaled or exceeded 100, and
(B) such partnership elects the application of this part.

To the extent provided in regulations, a partnership shall cease to be treated as an electing large partnership for any partnership taxable year if in such taxable year fewer than 100 persons were partners in such partnership.

(2) Election 
The election under this subsection shall apply to the taxable year for which made and all subsequent taxable years unless revoked with the consent of the Secretary.
(b) Special rules for certain service partnerships 

(1) Certain partners not counted 
For purposes of this section, the term partner does not include any individual performing substantial services in connection with the activities of the partnership and holding an interest in such partnership, or an individual who formerly performed substantial services in connection with such activities and who held an interest in such partnership at the time the individual performed such services.
(2) Exclusion 
For purposes of this part, an election under subsection (a) shall not be effective with respect to any partnership if substantially all the partners of such partnership
(A) are individuals performing substantial services in connection with the activities of such partnership or are personal service corporations (as defined in section 269A (b)) the owner-employees (as defined in section 269A(b)) of which perform such substantial services,
(B) are retired partners who had performed such substantial services, or
(C) are spouses of partners who are performing (or had previously performed) such substantial services.
(3) Special rule for lower tier partnerships 
For purposes of this subsection, the activities of a partnership shall include the activities of any other partnership in which the partnership owns directly an interest in the capital and profits of at least 80 percent.
(c) Exclusion of commodity pools 
For purposes of this part, an election under subsection (a) shall not be effective with respect to any partnership the 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 such commodities.
(d) Secretary may rely on treatment on return 
If, on the partnership return of any partnership, such partnership is treated as an electing large partnership, such treatment shall be binding on such partnership and all partners of such partnership but not on the Secretary.

26 USC 776 - Special rules for partnerships holding oil and gas properties

(a) Computation of percentage depletion 
In the case of an electing large partnership, except as provided in subsection (b)
(1) the allowance for depletion under section 611 with respect to any partnership oil or gas property shall be computed at the partnership level without regard to any provision of section 613A requiring such allowance to be computed separately by each partner,
(2) such allowance shall be determined without regard to the provisions of section 613A (c) limiting the amount of production for which percentage depletion is allowable and without regard to paragraph (1) of section 613A (d), and
(3) paragraph (3) of section 705 (a) shall not apply.
(b) Treatment of certain partners 

(1) In general 
In the case of a disqualified person, the treatment under this chapter of such persons distributive share of any item of income, gain, loss, deduction, or credit attributable to any partnership oil or gas property shall be determined without regard to this part. Such persons distributive share of any such items shall be excluded for purposes of making determinations under sections 772 and 773.
(2) Disqualified person 
For purposes of paragraph (1), the term disqualified person means, with respect to any partnership taxable year
(A) any person referred to in paragraph (2) or (4) of section 613A (d) for such persons taxable year in which such partnership taxable year ends, and
(B) any other person if such persons average daily production of domestic crude oil and natural gas for such persons taxable year in which such partnership taxable year ends exceeds 500 barrels.
(3) Average daily production 
For purposes of paragraph (2), a persons average daily production of domestic crude oil and natural gas for any taxable year shall be computed as provided in section 613A (c)(2)
(A) by taking into account all production of domestic crude oil and natural gas (including such persons proportionate share of any production of a partnership),
(B) by treating 6,000 cubic feet of natural gas as a barrel of crude oil, and
(C) by treating as 1 person all persons treated as 1 taxpayer under section 613A (c)(8) or among whom allocations are required under such section.

26 USC 777 - Regulations

The Secretary shall prescribe such regulations as may be appropriate to carry out the purposes of this part.