Partnerships and Form 1065

Subchapter K sections that drive allocations, capital accounts, basis, and K-1 preparation.

Key sections and concepts

Section 701

Partners, not the partnership, are taxed

States the pass-through principle of Subchapter K.

Section 702

Partner's income and credits

Requires partners to account for their distributive shares.

Section 704(b)

Partnership allocations

Tests whether allocations have substantial economic effect.

Section 704(c)

Contributed property

Allocates built-in gain and loss on contributed property.

Section 704(d)

Loss limitation

Limits a partner's deductible losses to outside basis.

Section 707

Partner transactions

Covers transactions with partners, including guaranteed payments.

Section 721

Contributions to a partnership

Generally gives no gain or loss on contributions for an interest.

Section 731

Partnership distributions

Sets the recognition rules for distributions.

Section 736

Payments to retiring partners

Classifies payments to retiring or deceased partners.

Section 743(b)

Basis adjustment on transfer

Provides a special basis adjustment for transferees.

Section 751

Hot assets

Treats part of certain sales as ordinary income.

Section 752

Partnership liabilities

Determines how liabilities affect partner basis.

Section 754

Basis adjustment election

Elects basis adjustments on transfers and distributions.

Section 1061

Carried interest

Applies a three-year holding period to applicable partnership interests.

Section 6221

Centralized partnership audit regime

Provides the BBA audit rules at the partnership level.

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For general education only, not tax advice. Tax law changes often, so confirm current rules and amounts with primary sources.