90 STAT. 1548
PUBLIC LAW 9 4 ^ 5 5 — O C T. 4, 1976 by striking o u t " o r with respect to a part n e r whose interest is reduced" and inserting in lieu thereof " o r with respect to a part n e r whose interest is reduced (whether by entry of a new partner, partial liquidation of a part n e r ' s interest, gift, or otherwise)". (2) CERTAIN PROVISIONS O F SUBCHAPTER K M A Y N O T B E OVERR I D D E N BY PARTNERSHIP AGREEMENT.—Subsection (a) o f SectioU
26 USC 704.
704 (relating to effect of partnership agreement) is amended by striking out "except as otherwise provided in this section" and inserting in lieu thereof "except as otherwise provided in this chapter". (3) CROSS REFERENCES.—
(A) Section 704 is amended by a d d i n g a t the end thereof the following: "(f)
CROSS R E F E R E N C E. —
"For rules in the case of the sale, exchange, liquidation, or reduction of a partner's interest, see section 706(c)(2)." (B) Section 761 (relating to terms defined) is amended by a d d i n g at the end thereof the following:
26 USC 761. "(e)
CROSS R E F E R E N C E. —
"For rules in the case of the sale, exchange, liquidation, or reduction of a partner's interest, see sections 704(b) and 706(c)(2)." (d) DETERMINATION OF PARTNER'S DISTRIBUTIVE SHARE.—Subsec-
26 USC 704.
tion (b) of section 704 (relating to distributive share determined by income or loss ratio) is amended to read as follows: "(b)
DETERMINATION
OF DISTRIBUTIVE
S H A R E. — A part n e r ' s dis-
tributive share of income, gain, loss, deduction, o r credit (or item thereof) shall be determined in accordance with the partner's interest in the partnership (determined by taking into account all facts and circumstances), if—• " (1) the partnership agreement does not provide as to the part ' ner's distributive share of income, gain, loss, deduction, o r credit (or item thereof), or " (2) the allocation to a part n e r under the agreement of income, gain, loss, deduction, or credit (or item thereof) does not have substantial economic effect." (e) TREATMENT OF PARTNERSHIP LIABILITIES W I T H RESPECT TO W H I C H THE PARTNER I S N O T PERSONALLY LIABLE.—Section 7 0 4 (d)
(relating to limitation on allowance of losses) is amended by adding at the end thereof the following new sentences:
Ante, p. 1531.
26 USC 709
note.
" For purposes of this subsection, the adjusted basis of any part n e r ' s interest in the partnership shall not include any portion of any partnership liability with respect to which the part n e r has no personal liability. The preceding sentence shall not apply with respect to any activity to the extent that section 465 (relating to limiting deductions to amounts at risk in case of certain activities) applies, n o r shall it apply to any partnership the principal activity of which is investing in real property (other than mineral property). " (f)
EFFECTIVE
DATES.—
(1) ii^ GENERAL.—Exccpt as Otherwise provided i n this subsection, the amendments made by this section shall apply in the case of partnership taxable years beginning after December 31, 1975. (2) SUBSECTION (e).—The amendment made by subsection (e) shall apply to liabilities incurred after December 31, 1976.
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