# 26 U.S.C. § 707: Transactions between partner and partnership Source: OLRC release point 119-134 . Cite pinpoints as 26 U.S.C. § 707(a)(1). ## § 707(a) Partner not acting in capacity as partner **§ 707(a)(1) In general.** If a partner engages in a transaction with a partnership other than in his capacity as a member of such partnership, the transaction shall, except as otherwise provided in this section, be considered as occurring between the partnership and one who is not a partner. **§ 707(a)(2) Treatment of payments to partners for property or services.** Except as provided by the Secretary— **§ 707(a)(2)(A) Treatment of certain services and transfers of property.** If— **§ 707(a)(2)(A)(i)** a partner performs services for a partnership or transfers property to a partnership, **§ 707(a)(2)(A)(ii)** there is a related direct or indirect allocation and distribution to such partner, and **§ 707(a)(2)(A)(iii)** the performance of such services (or such transfer) and the allocation and distribution, when viewed together, are properly characterized as a transaction occurring between the partnership and a partner acting other than in his capacity as a member of the partnership, such allocation and distribution shall be treated as a transaction described in paragraph (1). **§ 707(a)(2)(B) Treatment of certain property transfers.** If— **§ 707(a)(2)(B)(i)** there is a direct or indirect transfer of money or other property by a partner to a partnership, **§ 707(a)(2)(B)(ii)** there is a related direct or indirect transfer of money or other property by the partnership to such partner (or another partner), and **§ 707(a)(2)(B)(iii)** the transfers described in clauses (i) and (ii), when viewed together, are properly characterized as a sale or exchange of property, such transfers shall be treated either as a transaction described in paragraph (1) or as a transaction between 2 or more partners acting other than in their capacity as members of the partnership. ## § 707(b) Certain sales or exchanges of property with respect to controlled partnerships **§ 707(b)(1) Losses disallowed.** No deduction shall be allowed in respect of losses from sales or exchanges of property (other than an interest in the partnership), directly or indirectly, between— **§ 707(b)(1)(A)** a partnership and a person owning, directly or indirectly, more than 50 percent of the capital interest, or the profits interest, in such partnership, or **§ 707(b)(1)(B)** two partnerships in which the same persons own, directly or indirectly, more than 50 percent of the capital interests or profits interests. In the case of a subsequent sale or exchange by a transferee described in this paragraph, section 267(d) shall be applicable as if the loss were disallowed under section 267(a)(1). For purposes of section 267(a)(2), partnerships described in subparagraph (B) of this paragraph shall be treated as persons specified in section 267(b). **§ 707(b)(2) Gains treated as ordinary income.** In the case of a sale or exchange, directly or indirectly, of property, which in the hands of the transferee, is property other than a capital asset as defined in section 1221— **§ 707(b)(2)(A)** between a partnership and a person owning, directly or indirectly, more than 50 percent of the capital interest, or profits interest, in such partnership, or **§ 707(b)(2)(B)** between two partnerships in which the same persons own, directly or indirectly, more than 50 percent of the capital interests or profits interests, any gain recognized shall be considered as ordinary income. **§ 707(b)(3) Ownership of a capital or profits interest.** For purposes of paragraphs (1) and (2) of this subsection, the ownership of a capital or profits interest in a partnership shall be determined in accordance with the rules for constructive ownership of stock provided in section 267(c) other than paragraph (3) of such section. ## § 707(c) Guaranteed payments To the extent determined without regard to the income of the partnership, payments to a partner for services or the use of capital shall be considered as made to one who is not a member of the partnership, but only for the purposes of section 61(a) (relating to gross income) and, subject to section 263, for purposes of section 162(a) (relating to trade or business expenses). ## Regulations - [Treas. Reg. § 1.707-0](/26/reg/1.707-0.md): Table of contents. (interprets § 707) - [Treas. Reg. § 1.707-1](/26/reg/1.707-1.md): Transactions between partner and partnership. (interprets § 707) - [Treas. Reg. § 1.707-2](/26/reg/1.707-2.md): Disguised payments for services. [Reserved] (interprets § 707) - [Treas. Reg. § 1.707-3](/26/reg/1.707-3.md): Disguised sales of property to partnership; general rules. (interprets § 707) - [Treas. Reg. § 1.707-4](/26/reg/1.707-4.md): Disguised sales of property to partnership; special rules applicable to guaranteed payments, preferred returns, operating cash flow distributions, and reimbursements of preformation expenditures. (interprets § 707) - [Treas. Reg. § 1.707-5](/26/reg/1.707-5.md): Disguised sales of property to partnership; special rules relating to liabilities. (interprets § 707) - [Treas. Reg. § 1.707-6](/26/reg/1.707-6.md): Disguised sales of property by partnership to partner; general rules. (interprets § 707) - [Treas. Reg. § 1.707-7](/26/reg/1.707-7.md): Disguised sales of partnership interests. [Reserved] (interprets § 707) - [Treas. Reg. § 1.707-8](/26/reg/1.707-8.md): Disclosure of certain information. (interprets § 707) - [Treas. Reg. § 1.707-9](/26/reg/1.707-9.md): Effective dates and transitional rules. (interprets § 707) ## Forms named in the regulations - [Form 8275](https://www.irs.gov/pub/irs-pdf/f8275.pdf) ## Final rules - [84 FR 54027](https://www.federalregister.gov/documents/2019/10/09/2019-22030/removal-of-temporary-regulations-on-a-partners-share-of-a-partnership-liability-for-disguised-sale) (2019): Removal of Temporary Regulations on a Partner's Share of a Partnership Liability for Disguised Sale Purposes - [81 FR 69282](https://www.federalregister.gov/documents/2016/10/05/2016-23388/liabilities-recognized-as-recourse-partnership-liabilities-under-section-752) (2016): Liabilities Recognized as Recourse Partnership Liabilities Under Section 752 - [81 FR 69291](https://www.federalregister.gov/documents/2016/10/05/2016-23387/section-707-regarding-disguised-sales-generally) (2016): Section 707 Regarding Disguised Sales, Generally ## Leading cases - [Virginia Historic Tax Credit Fund 2001 LP v. Commissioner, 639 F.3d 129 (4th Cir. 2011)](https://www.courtlistener.com/opinion/213558/virginia-historic-tax-credit-fund-2001-lp-v-commissioner/) - [Pratt v. Commissioner, 550 F.2d 1023 (5th Cir. 1977)](https://www.courtlistener.com/opinion/343444/edward-t-and-billie-r-pratt-william-d-and-anita-pratt-jack-e-and/) - [Kampel v. Commissioner, 634 F.2d 708 (2d Cir. 1980)](https://www.courtlistener.com/opinion/384360/daniel-s-kampel-and-clarisse-kampel-v-commissioner-of-internal-revenue/) ## Proposed regulations (not in force) - [Prop. Treas. Reg. § 1.707-8](/26/prop/1.707-8_2014-01637.md): Disclosure of certain information. (REG-119305-11, proposed 2014-01-30) - [Prop. Treas. Reg. § 1.707-0](/26/prop/1.707-0_2015-17828.md): Table of contents. (REG-105346-03, proposed 2015-07-23) - [Prop. Treas. Reg. § 1.707-2](/26/prop/1.707-2_2015-17828.md): Disguised payments for services. (REG-105346-03, proposed 2015-07-23) - [Prop. Treas. Reg. § 1.707-1](/26/prop/1.707-1_2015-17828.md): Transactions between partner and partnership. (REG-105346-03, proposed 2015-07-23) - [Prop. Treas. Reg. § 1.707-9](/26/prop/1.707-9_2015-17828.md): Effective dates and transitional rules. (REG-105346-03, proposed 2015-07-23) - [Prop. Treas. Reg. § 1.707-0](/26/prop/1.707-0_2016-23390.md): Table of contents. (REG-119305-11, proposed 2016-10-05) - [Prop. Treas. Reg. § 1.707-1](/26/prop/1.707-1_2023-25715.md): Transactions between partner and partnership. (REG-131756-11, proposed 2023-11-27) - [Prop. Treas. Reg. § 1.707-9](/26/prop/1.707-9_2023-25715.md): Applicability dates and transitional rules. (REG-131756-11, proposed 2023-11-27) ## Connections Cites: § 61 Gross income defined; § 162 Trade or business expenses; § 263 Capital expenditures; § 267 Losses, expenses, and interest with respect to transactions between related taxpayers; § 1221 Capital asset defined Cited by: § 197 Amortization of goodwill and certain other intangibles; § 199A Qualified business income; § 267 Losses, expenses, and interest with respect to transactions between related taxpayers; § 453 Installment method; § 465 Deductions limited to amount at risk; § 469 Passive activity losses and credits limited; § 512 Unrelated business taxable income; § 706 Taxable years of partner and partnership; § 736 Payments to a retiring partner or a deceased partner’s successor in interest; § 1033 Involuntary conversions; § 1235 Sale or exchange of patents; § 1402 Definitions; § 7519 Required payments for entities electing not to have required taxable year ## Amendments - 1954-08-16: [Act Aug. 16, 1954, ch. 736](/26/act/1954-ch736.md), 68A Stat. 243 - 1976-10-04: [Pub. L. 94-455](/26/act/94-455.md), 90 Stat. 1547 - 1984-07-18: [Pub. L. 98-369](/26/act/98-369.md), 98 Stat. 591 - 1986-10-22: [Pub. L. 99-514](/26/act/99-514.md), 100 Stat. 2284 - 2025-07-04: [Pub. L. 119-21](/26/act/119-21.md), 139 Stat. 284