
From the U.S. Code Online via GPO Access
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[Laws in effect as of January 2, 2001]
[Document not affected by Public Laws enacted between
  January 2, 2001 and January 28, 2002]
[CITE: 26USC772]

 
                     TITLE 26--INTERNAL REVENUE CODE
 
                        Subtitle A--Income Taxes
 
                  CHAPTER 1--NORMAL TAXES AND SURTAXES
 
                 Subchapter K--Partners and Partnerships
 
         PART IV--SPECIAL RULES FOR ELECTING LARGE PARTNERSHIPS
 
Sec. 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 
partner's distributive share of the partnership's--
        (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,
        (10) the credit allowable under section 29, and
        (11) 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 partner's 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 partner's 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 partner's 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 
    partner's 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 partner's 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 partner's 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 partner's 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 partner's 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, the foreign 
    tax credit, and the credit allowable under section 29.

                      (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 partner's 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 partner's 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.

(Added Pub. L. 105-34, title XII, Sec. 1221(a), Aug. 5, 1997, 111 Stat. 
1002.)

                  Section Referred to in Other Sections

    This section is referred to in sections 773, 774, 776 of this title.
