Internal Revenue Code · 26 U.S.C.
§ 704. Partner’s distributive share
Official text, no changes From the Office of the Law Revision Counsel, release point 119-121 (current through Public Law 119-121 (October 9, 2026)). Compare it with the official text at uscode.house.gov (external site).
Cite as 26 U.S.C. § 704
At a glance
Read from the text, the source credit and the official notes. Not part of the law.
- Status
- In force
- Enacted
- October 4, 1976 by Pub. L. 94–455
- Last amended
- December 22, 2017 by Pub. L. 115–97
- Amendments
- 8 dated changes in the source credit
- Length
- 6 subsections · 1,181 words · about 5 min to read
- Defines
- 1 term
- Cross-references
- cites 3; cited by 11 Code sections and 108 other regulations
- Regulations
- 5 issued under this section
A partner’s distributive share of income, gain, loss, deduction, or credit shall, except as otherwise provided in this chapter, be determined by the partnership agreement.
Under regulations prescribed by the Secretary, rules similar to the rules of paragraph (1) shall apply to contributions by a partner (using the cash receipts and disbursements method of accounting) of accounts payable and other accrued but unpaid items. Any reference in paragraph (1) or (2) to the contributing partner shall be treated as including a reference to any successor of such partner.
A partner’s distributive share of partnership loss (including capital loss) shall be allowed only to the extent of the adjusted basis of such partner’s interest in the partnership at the end of the partnership year in which such loss occurred.
Any excess of such loss over such basis shall be allowed as a deduction at the end of the partnership year in which such excess is repaid to the partnership.
In determining the amount of any loss under paragraph (1), there shall be taken into account the partner’s distributive share of amounts described in paragraphs (4) and (6) of section 702(a).
In the case of a charitable contribution of property whose fair market value exceeds its adjusted basis, subparagraph (A) shall not apply to the extent of the partner’s distributive share of such excess.
In the case of any partnership interest created by gift, the distributive share of the donee under the partnership agreement shall be includible in his gross income, except to the extent that such share is determined without allowance of reasonable compensation for services rendered to the partnership by the donor, and except to the extent that the portion of such share attributable to donated capital is proportionately greater than the share of the donor attributable to the donor’s capital. The distributive share of a partner in the earnings of the partnership shall not be diminished because of absence due to military service.
For purposes of this subsection, an interest purchased by one member of a family from another shall be considered to be created by gift from the seller, and the fair market value of the purchased interest shall be considered to be donated capital. The “family” of any individual shall include only his spouse, ancestors, and lineal descendants, and any trusts for the primary benefit of such persons.
For rules in the case of the sale, exchange, liquidation, or reduction of a partner’s interest, see section 706(c)(2).
(Aug. 16, 1954, ch. 736, 68A Stat. 240; Pub. L. 94–455, title II, § 213(c)(2), (3)(A), (d), (e), title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1548, 1834; Pub. L. 95–600, title II, § 201(b)(1), Nov. 6, 1978, 92 Stat. 2816; Pub. L. 98–369, div. A, title I, § 71(a), July 18, 1984, 98 Stat. 589; Pub. L. 101–239, title VII, § 7642(a), Dec. 19, 1989, 103 Stat. 2379; Pub. L. 102–486, title XIX, § 1937(b)(1), Oct. 24, 1992, 106 Stat. 3033; Pub. L. 105–34, title X, § 1063(a), Aug. 5, 1997, 111 Stat. 947; Pub. L. 108–357, title VIII, § 833(a), Oct. 22, 2004, 118 Stat. 1589; Pub. L. 114–74, title XI, § 1102(b), Nov. 2, 2015, 129 Stat. 639; Pub. L. 115–97, title I, § 13503(a), Dec. 22, 2017, 131 Stat. 2141.)
Terms defined here
Where the text says “the term … means”. Select a term to jump to its definition.
Regulations under this section
Treasury regulations (26 CFR) issued under § 704
Cross-references
Computed from the citations in the text of Title 26 and 26 CFR.
This section cites 3 other sections
- § 1031 Exchange of real property held for productive use or investment
- § 702(a) Income and credits of partner
- § 706(c)(2) Taxable years of partner and partnership
Cited by 11 Code sections
- § 59(h) Other definitions and special rules
- § 108(i)(6) Income from discharge of indebtedness
- § 168(h)(6)(B)(ii) Accelerated cost recovery system
- § 461(i)(2)(B)(i) General rule for taxable year of deduction
- § 514(c)(9)(E)(i)(II) Unrelated debt-financed income
- § 613A(c)(7)(D) Limitations on percentage depletion in case of oil and gas wells
- § 737(b) Recognition of precontribution gain in case of certain distributions to contributing partner
- § 743(b)(2) Special rules where section 754 election or substantial built-in loss
- § 761(g) Terms defined
- § 897(k)(4)(C) Disposition of investment in United States real property
- § 1446(a)(2) Withholding of tax on foreign partners’ share of effectively connected income
Cited in 108 regulations not issued under it
- § 1.1(h)-1 Capital gains look-through rule for sales or exchanges of interests in a partnership, S corporation, or trust.
- § 1.28-1 Credit for clinical testing expenses for certain drugs for rare diseases or conditions.
- § 1.41-2 Qualified research expenses.
- § 1.41-7 Special rules.
- § 1.46-3 Qualified investment.
- § 1.46-5 Qualified progress expenditures.
- § 1.50-1 Lessee's income inclusion following election of lessor of investment credit property to treat lessee as acquirer.
- § 1.50B-4 Partnerships.
- § 1.59A-0 Table of contents.
- § 1.59A-7 Application of base erosion and anti-abuse tax to partnerships.
- § 1.108(i)-2 Application of section 108(i) to partnerships and S corporations.
- § 1.141-3 Definition of private business use.
- § 1.163(j)-0 Table of contents.
- § 1.163(j)-1 Definitions.
- § 1.163(j)-2 Deduction for business interest expense limited.
- § 1.163(j)-6 Application of the section 163(j) limitation to partnerships and subchapter S corporations.
- § 1.163(j)-10 Allocation of interest expense, interest income, and other items of expense and gross income to an excepted trade or business.
- § 1.168(j)-1T Questions and answers concerning tax-exempt entity leasing rules (temporary).
- § 1.168(k)-0 Table of contents.
- § 1.168(k)-2 Additional first year depreciation deduction for property acquired and placed in service after September 27, 2017.
- § 1.170A-14 Qualified conservation contributions.
- § 1.179-2 Limitations on amount subject to section 179 election.
- § 1.194-2 Amount of deduction allowable.
- § 1.197-0 Table of contents.
Show 84 more
- § 1.197-2 Amortization of goodwill and certain other intangibles.
- § 1.250(b)-2 Qualified business asset investment (QBAI).
- § 1.263A-1 Uniform capitalization of costs.
- § 1.337(d)-3 Gain recognition upon certain partnership transactions involving a partner's stock.
- § 1.358-7 Transfers by partners and partnerships to corporations.
- § 1.362-3 Basis of importation property acquired in loss importation transaction.
- § 1.385-3 Certain distributions of debt instruments and similar transactions.
- § 1.401-10 Definitions relating to plans covering self-employed individuals.
- § 1.404(e)-1A Contributions on behalf of a self-employed individual to or under a qualified pension, annuity, or profit-sharing plan.
- § 1.460-0 Outline of regulations under section 460.
- § 1.460-3 Long-term construction contracts.
- § 1.460-4 Methods of accounting for long-term contracts.
- § 1.460-6 Look-back method.
- § 1.469-0 Table of contents.
- § 1.469-1T General rules (temporary).
- § 1.469-2 Passive activity loss.
- § 1.469-2T Passive activity loss (temporary).
- § 1.471-1 Need for inventories.
- § 1.512(a)-6 Special rule for organizations with more than one unrelated trade or business.
- § 1.514(c)-2 Permitted allocations under section 514(c)(9)(E).
- § 1.612-3 Depletion; treatment of bonus and advanced royalty.
- § 1.613A-3 Exemption for independent producers and royalty owners.
- § 1.613A-7 Definitions.
- § 1.701-2 Anti-abuse rule.
- § 1.702-1 Income and credits of partner.
- § 1.705-1 Determination of basis of partner's interest.
- § 1.706-1 Taxable years of partner and partnership.
- § 1.706-4 Determination of distributive share when a partner's interest varies.
- § 1.707-1 Transactions between partner and partnership.
- § 1.707-5 Disguised sales of property to partnership; special rules relating to liabilities.
- § 1.708-1 Continuation of partnership.
- § 1.721(c)-1 Overview, definitions, and rules of general application.
- § 1.721(c)-3 Gain deferral method.
- § 1.721(c)-5 Acceleration event exceptions.
- § 1.721(c)-7 Examples.
- § 1.731-2 Partnership distributions of marketable securities.
- § 1.737-1 Recognition of precontribution gain.
- § 1.737-2 Exceptions and special rules.
- § 1.737-3 Basis adjustments; Recovery rules.
- § 1.737-4 Anti-abuse rule.
- § 1.743-1 Optional adjustment to basis of partnership property.
- § 1.751-1 Unrealized receivables and inventory items.
- § 1.752-0 Table of contents.
- § 1.752-2 Partner's share of recourse liabilities.
- § 1.752-3 Partner's share of nonrecourse liabilities.
- § 1.752-7 Partnership assumption of partner's § 1.752-7 liability on or after June 24, 2003.
- § 1.755-1 Rules for allocation of basis.
- § 1.761-3 Certain option holders treated as partners.
- § 1.864(c)(8)-1 Gain or loss by foreign persons on the disposition of certain partnership interests.
- § 1.879-1 Treatment of community income.
- § 1.907(c)-2 Section 907(c)(3) items (for taxable years beginning after December 31, 1982).
- § 1.909-0 Outline of regulation provisions for section 909.
- § 1.909-2 Splitter arrangements.
- § 1.909-6 Pre-2011 foreign tax credit splitting events.
- § 1.951A-3 Qualified business asset investment.
- § 1.954-2 Foreign personal holding company income.
- § 1.956-4 Certain rules applicable to partnerships.
- § 1.981-1 Foreign law community income for taxable years beginning after December 31, 1966, and before January 1, 1977.
- § 1.987-7 Application of the section 987 regulations to partnerships and S corporations.
- § 1.1061-1 Section 1061 definitions.
- § 1.1061-3 Exceptions to the definition of an API.
- § 1.1245-1 General rule for treatment of gain from dispositions of certain depreciable property.
- § 1.1250-2 Additional depreciation defined.
- § 1.1254-5 Special rules for partnerships and their partners.
- § 1.1297-1 Definition of passive foreign investment company.
- § 1.1363-2 Recapture of LIFO benefits.
- § 1.1374-0 Table of contents.
- § 1.1374-4 Recognized built-in gain or loss.
- § 1.1400Z2(b)-1 Inclusion of gains that have been deferred under section 1400Z-2(a).
- § 1.1402(a)-1 Definition of net earnings from self-employment.
- § 1.1402(a)-2 Computation of net earnings from self-employment.
- § 1.1445-5 Special rules concerning distributions and other transactions by corporations, partnerships, trusts, and estates.
- § 1.1446-1 Withholding tax on foreign partners' share of effectively connected taxable income.
- § 1.1446-2 Determining a partnership's effectively connected taxable income allocable to foreign partners under section 704.
- § 1.1446-3 Time and manner of calculating and paying over the 1446 tax.
- § 1.1446-5 Tiered partnership structures.
- § 1.1446-6 Special rules to reduce a partnership's 1446 tax with respect to a foreign partner's allocable share of effectively connected taxable income.
- § 1.1502-13 Intercompany transactions.
- § 1.6038B-2 Reporting of certain transfers to foreign partnerships.
- § 1.6418-3 Additional rules for partnerships and S corporations.
- § 25.2701-1 Special valuation rules in the case of transfers of certain interests in corporations and partnerships.
- § 53.4943-3 Determination of excess business holdings.
- § 53.4968-2 Net investment income.
- § 301.6225-1 Partnership adjustment by the Internal Revenue Service.
Amendment history
From the source credit and the official notes, newest first.
- Amended by Pub. L. 115–97Parts changed in 2017: (d)
- Amended by Pub. L. 114–74Parts changed in 2015: (e)
- Amended by Pub. L. 108–357Parts changed in 2004: (c)(1)(C)
- Amended by Pub. L. 105–34Parts changed in 1997: (c)(1)(B)
- Amended by Pub. L. 102–486Parts changed in 1992: (c)(1)(B)
- Amended by Pub. L. 101–239Parts changed in 1989: (c)
- Amended by Pub. L. 98–369Parts changed in 1984: (c)
- Amended by Pub. L. 95–600Parts changed in 1978: (d)
- Enacted by Pub. L. 94–455Parts changed in 1976: (a) (b) (c)(2) (d) (f)
Where it sits in the Code
- Subtitle A Income Taxes
- Chapter 1 NORMAL TAXES AND SURTAXES
- Subchapter K Partners and Partnerships
- Part I DETERMINATION OF TAX LIABILITY
Nearby sections
- § 701 Partners, not partnership, subject to tax
- § 702 Income and credits of partner
- § 703 Partnership computations
- § 704 Partner’s distributive share
- § 705 Determination of basis of partner’s interest
- § 706 Taxable years of partner and partnership
- § 707 Transactions between partner and partnership
- § 708 Continuation of partnership
Official notes
Show the Law Revision Counsel's notes (amendments, effective dates)
Editorial Notes
Amendments
2017—Subsec. (d). Pub. L. 115–97 designated first and second sentences of existing provisions as pars. (1) and (2), respectively, inserted headings, and added par. (3).
2015—Subsec. (e). Pub. L. 114–74 substituted “Partnership interests created by gift” for “Family partnerships” in heading, redesignated pars. (2) and (3) as (1) and (2), respectively, substituted “this subsection” for “this section” in par. (2), and struck out former par. (1). Prior to amendment, text of par. (1) read as follows: “A person shall be recognized as a partner for purposes of this subtitle if he owns a capital interest in a partnership in which capital is a material income-producing factor, whether or not such interest was derived by purchase or gift from any other person.”
2004—Subsec. (c)(1)(C). Pub. L. 108–357 added subpar. (C).
1997—Subsec. (c)(1)(B). Pub. L. 105–34 substituted “7 years” for “5 years” in introductory provisions.
1992—Subsec. (c)(1)(B). Pub. L. 102–486 substituted “is distributed (directly or indirectly)” for “is distributed”.
1989—Subsec. (c). Pub. L. 101–239 amended subsec. (c) generally. Prior to amendment, subsec. (c) read as follows: “Under regulations prescribed by the Secretary, income, gain, loss, and deduction with respect to property contributed to the partnership by a partner shall be shared among partners so as to take account of the variation between the basis of the property to the partnership and its fair market value at the time of contribution. Under regulations prescribed by the Secretary, rules similar to the rules of the preceding sentence shall apply to contributions by a partner (using the cash receipts and disbursements method of accounting) of accounts payable and other accrued but unpaid items.”
1984—Subsec. (c). Pub. L. 98–369 amended subsec. (c) generally, substituting provisions directing that, under regulations prescribed by the Secretary, income, gain, loss, and deduction with respect to property contributed to the partnership by a partner be shared among partners so as to take account of the variation between the basis of the property to the partnership and its fair market value at the time of contribution, and that similar rules apply to contributions by a partner (using the cash receipts and disbursements method of accounting) of accounts payable and other accrued but unpaid items for provisions which had directed that, if the partnership agreement so provided, depreciation, depletion, or gain or loss with respect to property contributed to the partnership by a partner would under regulations prescribed by the Secretary, be shared among the partners so as to take account of the variation between the basis of the property to the partnership and its fair market value at the time of contribution, and struck out provisions which had directed that in determining a partner’s distributive share of items described in section 702(a), depreciation, depletion, or gain or loss with respect to property contributed to the partnership by a partner would, except to the extent otherwise provided, be allocated among the partners in the same manner as if such property had been purchased by the partnership and that if the partnership agreement did not provide otherwise, depreciation, depletion, or gain or loss with respect to undivided interests in property contributed to a partnership would be determined as though such undivided interests had not been contributed to the partnership.
1978—Subsec. (d). Pub. L. 95–600 struck out provisions relating to adjusted basis of a partner’s interest.
1976—Subsec. (a). Pub. L. 94–455, § 213(c)(2), substituted “except as otherwise provided in this chapter” for “except as otherwise provided in this section”.
Subsec. (b). Pub. L. 94–455, § 213(d), among other changes, substituted “Determination of distributive share” for “Distributive share determined by income or loss ratio” in heading, in provisions preceding par. (1) “the partner’s interest in the partnership (determined by taking into account all facts and circumstances)” for “his distributive share of taxable income or loss of the partnership, as described in section 702(a)(9), for the taxable year”, and in par. (2) provision relating to a lack of substantial economic effect in a partnership agreement for provisions relating to the partnership agreement’s purpose being the avoidance or evasion of taxes.
Subsec. (c)(2). Pub. L. 94–455, § 1906(b)(13)(A), struck out “or his delegate” after “Secretary”.
Subsec. (d). Pub. L. 94–455, § 213(e), inserted provision relating to the determination of the adjusted basis of a partner’s liability where there is no personal liability and the applicability of such determination where section 465 of this title applies or the principal activity of the partnership is real estate investment.
Subsec. (f). Pub. L. 94–455, § 213(c)(3)(A), added subsec. (f).
Statutory Notes and Related Subsidiaries
Effective Date of 2017 Amendment
Pub. L. 115–97, title I, § 13503(b), Dec. 22, 2017, 131 Stat. 2141, provided that: “The amendments made by this section [amending this section] shall apply to partnership taxable years beginning after December 31, 2017.”
Effective Date of 2015 Amendment
Pub. L. 114–74, title XI, § 1102(c), Nov. 2, 2015, 129 Stat. 639, provided that: “The amendments made by this section [amending this section and section 761 of this title] shall apply to partnership taxable years beginning after December 31, 2015.”
Effective Date of 2004 Amendment
Pub. L. 108–357, title VIII, § 833(d)(1), Oct. 22, 2004, 118 Stat. 1592, provided that: “The amendment made by subsection (a) [amending this section] shall apply to contributions made after the date of the enactment of this Act [Oct. 22, 2004].”
Effective Date of 1997 Amendment
Pub. L. 105–34, title X, § 1063(b), Aug. 5, 1997, 111 Stat. 947, provided that:
“(1) In general.— The amendment made by subsection (a) [amending this section and section 737 of this title] shall apply to property contributed to a partnership after June 8, 1997.“(2) Binding contracts.— The amendment made by subsection (a) shall not apply to any property contributed pursuant to a written binding contract in effect on June 8, 1997, and at all times thereafter before such contribution if such contract provides for the contribution of a fixed amount of property.”
Effective Date of 1992 Amendment
Pub. L. 102–486, title XIX, § 1937(c), Oct. 24, 1992, 106 Stat. 3033, provided that: “The amendments made by this section [enacting section 737 of this title and amending this section and section 731 of this title] shall apply to distributions on or after June 25, 1992.”
Effective Date of 1989 Amendment
Pub. L. 101–239, title VII, § 7642(b), Dec. 19, 1989, 103 Stat. 2381, provided that: “The amendment made by subsection (a) [amending this section] shall apply in the case of property contributed to the partnership after October 3, 1989, in taxable years ending after such date.”
Effective Date of 1984 Amendment
Pub. L. 98–369, div. A, title I, § 71(c), July 18, 1984, 98 Stat. 589, provided that: “The amendments made by this section [amending this section and sections 613A and 743 of this title] shall apply with respect to property contributed to the partnership after March 31, 1984, in taxable years ending after such date.”
Effective Date of 1978 Amendment
Amendment by Pub. L. 95–600 and enactment of provision set out as a note under this section by section 201(b)(2) of Pub. L. 95–600 applicable to taxable years beginning after Dec. 31, 1978, see section 204(a) of Pub. L. 95–600, set out as a note under section 465 of this title.
Effective Date of 1976 Amendment
Amendment by section 213(c)(2), (c)(3)(A), (d) of Pub. L. 94–455 applicable in the case of partnership taxable years beginning after Dec. 31, 1975, see section 213(f)(1) of Pub. L. 94–455, set out as an Effective Date note under section 709 of this title.
Amendment by section 213(e) of Pub. L. 94–455 applicable to liabilities incurred after Dec. 31, 1976, see section 213(f)(2) of Pub. L. 94–455, set out as an Effective Date note under section 709 of this title.
Transitional Rule for Limitation on Allowance of Losses
Pub. L. 95–600, title II, § 201(b)(2), Nov. 6, 1978, 92 Stat. 2816, as amended by Pub. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, provided that: “In the case of a loss which was not allowed for any taxable year by reason of the last 2 sentences of section 704(d) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as in effect before the date of the enactment of this Act [Nov. 6, 1978]), such loss shall be treated as a deduction (subject to section 465(a) of such Code) for the first taxable year beginning after December 31, 1978. Section 465(a) of such Code (as amended by this section) shall not apply with respect to partnership liabilities to which the last 2 sentences of section 704(d) of such Code (as in effect on the day before the date of enactment of this Act) did not apply because of the provisions of section 213(f)(2) of the Tax Reform Act of 1976 [set out as a note under section 709 of this title].”