§ 83. Property transferred in connection with performance of services
§ 108. Income from discharge of indebtedness
§ 168. Accelerated cost recovery system
§ 195. Start-up expenditures
§ 267. Losses, expenses, and interest with respect to transactions between related taxpayers
§ 453. Installment method
§ 453B. Gain or loss on disposition of installment obligations
§ 465. Deductions limited to amount at risk
§ 469. Passive activity losses and credits limited
§ 1001. Determination of amount of and recognition of gain or loss
§ 1017. Discharge of indebtedness
§ 1223. Holding period of property
§ 1239. Gain from sale of depreciable property between certain related taxpayers
§ 1402. Definitions (net earnings from self-employment)
§ 7701. Definitions (partnership, corporation)
§ 7704. Certain publicly traded partnerships treated as corporations
§ 83. Property transferred in connection with performance of services
(a) General rule.--If, in connection with the performance of services, property is transferred to any person other than the person for whom such services are performed, the excess of--
(1) the fair market value of such property (determined without regard to any restriction other than a restriction which by its terms will never lapse) at the first time the rights of the person having the beneficial interest in such property are transferable or are not subject to a substantial risk of forfeiture, whichever occurs earlier, over
(2) the amount (if any) paid for such property,
shall be included in the gross income of the person who performed such services in the first taxable year in which the rights of the person having the beneficial interest in such property are transferable or are not subject to a substantial risk of forfeiture, whichever is applicable. The preceding sentence shall not apply if such person sells or otherwise disposes of such property in an arm‘s length transaction before his rights in such property become transferable or not subject to a substantial risk of forfeiture.
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§ 108. Income from discharge of indebtedness
(a) Exclusion from gross income.--
(1) In general.--Gross income does not include any amount which (but for this subsection) would be includible in gross income by reason of the discharge (in whole or in part) of indebtedness of the taxpayer if--
(A) the discharge occurs in a title 11 case,
(B) the discharge occurs when the taxpayer is insolvent,
(C) the indebtedness discharged is qualified farm indebtedness, or
(D) in the case of a taxpayer other than a C corporation, the indebtedness discharged is qualified real property business indebtedness.
. . . .
(b) Reduction of tax attributes.--
(1) In general.--The amount excluded from gross income under subparagraph (A), (B), or (C) of subsection (a)(1) shall be applied to reduce the tax attributes of the taxpayer as provided in paragraph (2).
(2) Tax attributes affected; order of reduction.--Except as provided in paragraph (5), the reduction referred to in paragraph (1) shall be made in the following tax attributes in the following order:
(A) NOL.--Any net operating loss for the taxable year of the discharge, and any net operating loss carryover to such taxable year.
(B) General business credit.--Any carryover to or from the taxable year of a discharge of an amount for purposes for determining the amount allowable as a credit under section 38 (relating to general business credit).
(C) Minimum tax credit.--The amount of the minimum tax credit available under section 53(b) as of the beginning of the taxable year immediately following the taxable year of the discharge.
(D) Capital loss carryovers.--Any net capital loss for the taxable year of the discharge, and any capital loss carryover to such taxable year under section 1212.
(E) Basis reduction.--(i) In general.--The basis of the property of the taxpayer.
. . . .
(F) Passive activity loss and credit carryovers.--Any passive activity loss or credit carryover of the taxpayer under section 469(b) from the taxable year of the discharge.
(G) Foreign tax credit carryovers.--Any carryover to or from the taxable year of the discharge for purposes of determining the amount of the credit allowable under section 27.
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(5) Election to apply reduction first against depreciable property.--
(A) In general.--The taxpayer may elect to apply any portion of the reduction referred to in paragraph (1) to the reduction under section 1017 of the basis of the depreciable property of the taxpayer.
(B) Limitation.--The amount to which an election under subparagraph (A) applies shall not exceed the aggregate adjusted bases of the depreciable property held by the taxpayer as of the beginning of the taxable year following the taxable year in which the discharge occurs.
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(d) . . . .
(6) Certain provisions to be applied at partner level.--In the case of a partnership, subsections (a), (b), (c), and (g) shall be applied at the partner level.
(e) . . . .
(5) Purchase-money debt reduction for solvent debtor treated as price reduction. If--
(A) the debt of a purchaser of property to the seller of such property which arose out of the purchase of such property is reduced,
(B) such reduction does not occur--
(i) in a title 11 case, or
(ii) when the purchaser is insolvent, and
(C) but for this paragraph, such reduction would be treated as income to the purchaser from the discharge of indebtedness,
then such reduction shall be treated as a purchase price adjustment.
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(g) Special rules for discharge of qualified farm indebtedness.--
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(2) Qualified farm indebtedness.--For purposes of this section, indebtedness of a taxpayer shall be treated as qualified farm indebtedness if--
(A) such indebtedness was incurred directly in connection with the operation by the taxpayer of the trade or business of farming, and
(B) 50 percent or more of the aggregate gross receipts of the taxpayer for the 3 taxable years preceding the taxable year in which the discharge of such indebtedness occurs is attributable to the trade or business of farming.
§ 168. Accelerated cost recovery system
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(i) Definitions and Special Rules.--For purposes of this section--
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(7) Treatment of certain transferees.--
(A) In general.--In the case of any property transferred in a transaction described in subparagraph (B), the transferee shall be treated as the transferor for purposes of computing the depreciation deduction determined under this section with respect to so much of the basis in the hands of the transferee as does not exceed the adjusted basis in the hands of the transferor. . . .
(B) Transactions covered.--The transactions described in this subparagraph are--
(i) any transaction described in section 332, 351, 361, 721, or 731, and
(ii) any transaction between members of the same affiliated group during any taxable year for which a consolidated return is made by such group.
Subparagraph (A) shall not apply in the case of a termination of a partnership under section 708(b)(1)(B).
§ 195. Start-up expenditures
(a) Capitalization of expenditures.--Except as otherwise provided in this section, no deduction shall be allowed for start-up expenditures.
(b) Election to amortize.--
(1) In general.--Start-up expenditures may, at the election of the taxpayer, be treated as deferred expenses. Such deferred expenses shall be allowed as a deduction prorated equally over such period of not less than 60 months as may be selected by the taxpayer (beginning with the month in which the active trade or business begins).
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(c) Definitions.--For purposes of this section--
(1) Start-up expenditures.--The term "start-up expenditure" means any amount--
(A) paid or incurred in connection with--
(i) investigating the creation or acquisition of an active trade or business, or
(ii) creating an active trade or business, or
(iii) any activity engaged in for profit and for the production of income before the day on which the active trade or business begins, in anticipation of such activity becoming an active trade or business, and
(B) which, if paid or incurred in connection with the operation of an existing active trade or business (in the same field as the trade or business referred to in subparagraph (A)), would be allowable as a deduction for the taxable year in which paid or incurred.
The term "start-up expenditure" does not include any amount with respect to which a deduction is allowable under section 163(a), 164, or 174.
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§ 267. Losses, expenses, and interest with respect to transactions between related taxpayers
(a) In general.--
(1) Deduction for losses disallowed.--No deduction shall be allowed in respect of any loss from the sale or exchange of property, directly or indirectly, between persons specified in any of the paragraphs of subsection (b). . . .
(2) Matching of deduction and payee income item in the case of expenses and interest.--If--
(A) by reason of the method of accounting of the person to whom the payment is to be made, the amount thereof is not (unless paid) includible in the gross income of such person, and
(B) at the close of the taxable year of the taxpayer for which (but for this paragraph) the amount would be deductible under this chapter, both the taxpayer and the person to whom the payment is to be made are persons specified in any of the paragraphs of subsection (b),
then any deduction allowable under this chapter in respect of such amount shall be allowable as of the day as of which such amount is includible in the gross income of the person to whom the payment is made (or, if later, as of the day on which it would be so allowable but for this paragraph). . . .
(b) Relationships.--The persons referred to in subsection (a) are:
(1) Members of a family, as defined in subsection (c)(4);
(2) An individual and a corporation more than 50 percent in value of the outstanding stock of which is owned, directly or indirectly, by or for such individual;
. . . .
(c) Constructive ownership of stock.--For purposes of determining, in applying subsection (b), the ownership of stock--
(1) Stock owned, directly or indirectly, by or for a corporation, partnership, estate, or trust shall be considered as being owned proportionately by or for its shareholders, partners, or beneficiaries;
(2) An individual shall be considered as owning the stock owned, directly or indirectly, by or for his family;
(3) An individual owning (otherwise than by the application of paragraph (2)) any stock in a corporation shall be considered as owning the stock owned, directly or indirectly, by or for his partner;
(4) The family of an individual shall include only his brothers and sisters (whether by the whole or half blood), spouse, ancestors, and lineal descendants; and
(5) Stock constructively owned by a person by reason of the application of paragraph (1) shall, for the purpose of applying paragraph (1), (2), or (3), be treated as actually owned by such person, but stock constructively owned by an individual by reason of the application of paragraph (2) or (3) shall not be treated as owned by him for the purpose of again applying either of such paragraphs in order to make another the constructive owner of such stock.
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(e) Special rules for pass-thru entities.--
(1) In general.--In the case of any amount paid or incurred by, to, or on behalf of, a pass-thru entity, for purposes of applying subsection (a)(2)--
(A) such entity,
(B) in the case of--
(i) a partnership, any person who owns (directly or indirectly) any capital interest or profits interest of such partnership, or
(ii) an S corporation, any person who owns (directly or indirectly) any of the stock of such corporation,
(C) any person who owns (directly or indirectly) any capital interest or profits interest of a partnership in which such entity owns (directly or indirectly) any capital interest or profits interest, and
(D) any person related (within the meaning of subsection (b) of this section or section 707(b)(1)) to a person described in subparagraph (B) or (C),
shall be treated as persons specified in a paragraph of subsection (b). Subparagraph (C) shall apply to a transaction only if such transaction is related either to the operations of the partnership described in such subparagraph or to an interest in such partnership.
(2) Pass-thru entity.--For purposes of this section, the term "pass-thru entity" means--
(A) a partnership, and
(B) an S corporation.
(3) Constructive ownership in the case of partnerships.--For purposes of determining ownership of a capital interest or profits interest of a partnership, the principles of subsection (c) shall apply, except that--
(A) paragraph (3) of subsection (c) shall not apply, and
(B) interests owned (directly or indirectly) by or for a C corporation shall be considered as owned by or for any shareholder only if such shareholder owns (directly or indirectly) 5 percent or more in value of the stock of such corporation.
(4) Subsection (a)(2) not to apply to certain guaranteed payments of partnerships. -- In the case of any amount paid or incurred by a partnership, subsection (a)(2) shall not apply to the extent that section 707(c) applies to such amount. . . .
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§ 453. Installment method
(a) General rule. Except as otherwise provided in this section, income from an installment sale shall be taken into account for purposes of this title under the installment method.
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(g) Sale of depreciable property to controlled entity.
(1) In general. In the case of an installment sale of depreciable property between related persons--
(A) subsection (a) shall not apply,
(B) for purposes of this title--
(i) except as provided in clause (ii), all payments to be received shall be treated as received in the year of the disposition, and
(ii) in the case of any payments which are contingent as to the amount but with respect to which the fair market value may not be reasonably ascertained, the basis shall be recovered ratably, and
(C) the purchaser may not increase the basis of any property acquired in such sale by any amount before the time such amount is includible in the gross income of the seller.
(2) Exception where tax avoidance not a principal purpose. Paragraph (1) shall not apply if it is established to the satisfaction of the Secretary that the disposition did not have as one of its principal purposes the avoidance of Federal income tax.
(3) Related persons. For purposes of this subsection, the term "related persons" has the meaning given to such term by section 1239(b), except that such term shall include 2 or more partnerships having a relationship to each other described in section 707(b)(1)(B).
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§ 453B. Gain or loss on disposition of installment obligations
(a) General rule.--If an installment obligation is satisfied at other than its face value or distributed, transmitted, sold, or otherwise disposed of, gain or loss shall result to the extent of the difference between the basis of the obligation and--
(1) the amount realized, in the case of satisfaction at other than face value or a sale or exchange, or
(2) the fair market value of the obligation at the time of distribution, transmission, or disposition, in the case of the distribution, transmission, or disposition otherwise than by sale or exchange.
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§ 465. Deductions limited to amount at risk
(a) Limitation to amount at risk.--
(1) In general.--In the case of--
(A) an individual, and
(B) a C corporation with respect to which the stock ownership requirement of paragraph (2) of section 542(a) is met,
engaged in an activity to which this section applies, any loss from such activity for the taxable year shall be allowed only to the extent of the aggregate amount with respect to which the taxpayer is at risk (within the meaning of subsection (b)) for such activity at the close of the taxable year.
(2) Deduction in succeeding year.--Any loss from an activity to which this section apples not allowed under this section for the taxable year shall be treated as a deduction allocable to such activity in the first succeeding taxable year.
. . . .
(b) Amounts considered at risk.--
(1) In general.--For purposes of this section, a taxpayer shall be considered at risk for an activity with respect to amounts including--
(A) the amount of money and the adjusted basis of other property contributed by the taxpayer to the activity, and
(B) amounts borrowed with respect to such activity (as determined under paragraph (2)).
(2) Borrowed amounts.--For purposes of this section, a taxpayer shall be considered at risk with respect to amounts borrowed for use in an activity to the extent that he--
(A) is personally liable for the repayment of such amounts, or
(B) has pledged property, other than property used in such activity, as security for such borrowed amount (to the extent of the net fair market value of the taxpayer’s interest in such property).
No property shall be taken into account as security if such property is directly or indirectly financed by indebtedness which is secured by property described in paragraph (1).
. . . .
(4) Exception.--Notwithstanding any other provision of this section, a taxpayer shall not be considered at risk with respect to amounts protected against loss through nonrecourse financing, guarantees, stop loss agreements, or other similar arrangements.
(5) Amounts at risk in subsequent years.--If in any taxable year the taxpayer has a loss from an activity to which subsection (a) applies, the amount with respect to which a taxpayer is considered to be at risk (within the meaning of subsection (b)) in subsequent taxable years with respect to that activity shall be reduced by that portion of the loss which (after the application of subsection (a)) is allowable as a deduction.
(6) Qualified nonrecourse financing treated as amount at risk.--For purposes of this section--
(A) In general.--Notwithstanding any other provision of this subsection, in the case of an activity of holding real property, a taxpayer shall be considered at risk with respect to the taxpayer‘s share of any qualified nonrecourse financing which is secured by real property used in such activity.
(B) Qualified nonrecourse financing.--For purposes of this paragraph, the term "qualified nonrecourse financing" means any financing--
(i) which is borrowed by the taxpayer with respect to the activity of holding real property,
(ii) which is borrowed by the taxpayer from a qualified person or represents a loan from any Federal, State, or local government or instrumentality thereof, or is guaranteed by any Federal, State, or local government,
(iii) except to the extent provided in regulations, with respect to which no person is personally liable for repayment, and
(iv) which is not convertible debt.
(C) Special rule for partnerships.--In the case of a partnership, a partner’s share of any qualified nonrecourse financing of such partnership shall be determined on the basis of the partner‘s share of liabilities of such partnership incurred in connection with such financing (within the meaning of section 752).
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(e) Recapture of losses where amount at risk is less than zero.--
(1) In general.--If zero exceeds the amount for which the taxpayer is at risk in any activity at the close of any taxable year--
(A) the taxpayer shall include in his gross income for such taxable year (as income from such activity) an amount equal to such excess, and
(B) an amount equal to the amount so included in gross income shall be treated as a deduction allocable to such activity for the first succeeding taxable year.
(2) Limitation.--The excess referred to in paragraph (1) shall not exceed--
(A) the aggregate amount of the reductions required by subsection (b)(5) with respect to the activity by reason of losses for all prior taxable years beginning after December 31, 1978, reduced by
(B) the amounts previously included in gross income with respect to such activity under this subsection.
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§ 469. Passive activity losses and credits limited
(a) Disallowance.--
(1) In general.--If for any taxable year the taxpayer is described in paragraph (2), neither--
(A) the passive activity loss, nor
(B) the passive activity credit,
for the taxable year shall be allowed.
(2) Persons described.--The following are described in this paragraph:
(A) any individual, estate, or trust,
(B) any closely held C corporation, and
(C) any personal service corporation.
(b) Disallowed loss or credit carried to next year.--Except as otherwise provided in this section, any loss or credit from an activity which is disallowed under subsection (a) shall be treated as a deduction or credit allocable to such activity in the next taxable year.
(c) Passive activity defined.--For purposes of this section--
(1) In general.--The term "passive activity" means any activity--
(A) which involves the conduct of any trade or business, and
(B) in which the taxpayer does not materially participate.
(2) Passive activity includes any rental activity.--Except as provided in paragraph (7), the term "passive activity" includes any rental activity.
. . . .
(h) Material participation defined.--For purposes of this section--
(1) In general.--A taxpayer shall be treated as materially participating in an activity only if the taxpayer is involved in the operations of the activity on a basis which is--
(A) regular,
(B) continuous, and
(C) substantial.(2) Interests in limited partnerships.--Except as provided in regulations, no interest in a limited partnership as a limited partner shall be treated as an interest with respect to which a taxpayer materially participates.
(i) $25,000 offset for rental real estate activities.--
(1) In general.--In the case of any natural person, subsection (a) shall not apply to that portion of the passive activity loss or the deduction equivalent (within the meaning of subsection (j)(5)) of the passive activity credit for any taxable year which is attributable to all rental real estate activities with respect to which such individual actively participated in such taxable year (and if any portion of such loss or credit arose in another taxable year, in such other taxable year).
(2) Dollar limitation.--The aggregate amount to which paragraph (1) applies for any taxable year shall not exceed $25,000.
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(k) Separate application of section in case of publicly traded partnerships.--
(1) In general.--This section shall be applied separately with respect to items attributable to each publicly traded partnership (and subsection (i) shall not apply with respect to items attributable to any such partnership). . . .
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§ 1001. Determination of amount of and recognition of gain or loss
(a) Computation of gain or loss.--The gain from the sale or other disposition of property shall be the excess of the amount realized therefrom over the adjusted basis provided in section 1011 for determining gain, and the loss shall be the excess of the adjusted basis provided in such section for determining loss over the amount realized.
(b) Amount realized.--The amount realized from the sale or other disposition of property shall be the sum of any money received plus the fair market value of the property (other than money) received. . . .
(c) Recognition of gain or loss.--Except as otherwise provided in this subtitle, the entire amount of the gain or loss, determined under this section, on the sale or exchange of property shall be recognized.
§ 1017. Discharge of indebtedness
. . . .
(b) . . .
(3) Certain reductions may only be made in the basis of depreciable property.--
(A) In general.--Any amount which under subsection (b)(5) or (c)(1) of section 108 is to be applied to reduce basis shall be applied only to reduce the basis of depreciable property held by the taxpayer.
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(C) Special rule for partnership interests.--For purposes of this section, any interest of a partner in a partnership shall be treated as depreciable property to the extent of such partner’s proportionate interest in the depreciable property held by such partnership. The preceding sentence shall apply only if there is a corresponding reduction in the partnership‘s basis in depreciable property with respect to such partner.
§ 1223. Holding period of property
For purposes of this subtitle--
(1) In determining the period for which the taxpayer has held property received in an exchange, there shall be included the period for which he held the property exchanged if, under this chapter, the property has, for the purpose of determining gain or loss from a sale or exchange, the same basis in whole or in part in his hands as the property exchanged, and, in the case of such exchanges after March 1, 1954, the property exchanged at the time of such exchange was a capital asset as defined in section 1221 or property described in section 1231. . . .
(2) In determining the period for which the taxpayer has held property however acquired there shall be included the period for which such property was held by any other person, if under this chapter such property has, for the purpose of determining gain or loss from a sale or exchange, the same basis in whole or in part in his hands as it would have in the hands of such other person.
§ 1239. Gain from sale of depreciable property between certain related taxpayers
(a) Treatment of gain as ordinary income. In the case of a sale or exchange of property, directly or indirectly, between related persons, any gain recognized to the transferor shall be treated as ordinary income if such property is, in the hands of the transferee, of a character which is subject to the allowance for depreciation provided in section 167.
(b) Related persons. For purposes of subsection (a), the term "related persons" means--
(1) a person and all entities which are controlled entities with respect to such person,
(2) a taxpayer and any trust in which such taxpayer (or his spouse) is a beneficiary, unless such beneficiary's interest in the trust is a remote contingent interest (within the meaning of section 318(a)(3)(B)(i)), and
(3) except in the case of a sale or exchange in satisfaction of a pecuniary bequest, an executor of an estate and a beneficiary of such estate.
(c) Controlled entity defined.
(1) General rule. For purposes of this section, the term "controlled entity" means, with respect to any person--
(A) a corporation more than 50 percent of the value of the outstanding stock of which is owned (directly or indirectly) by or for such person,
(B) a partnership more than 50 percent of the capital interest or profits interest in which is owned (directly or indirectly) by or for such person, and
(C) any entity which is a related person to such person under paragraph (3), (10), (11), or (12) of section 267(b).
(2) Constructive ownership. For purposes of this section, ownership shall be determined in accordance with rules similar to the rules under section 267(c) (other than paragraph (3) thereof).
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§ 1402. Definitions
(a) Net earnings from self-employment.--The term "net earnings from self- employment" means the gross income derived by an individual from any trade or business carried on by such individual, less the deductions allowed by this subtitle which are attributable to such trade or business, plus his distributive share (whether or not distributed) of income or loss described in section 702(a)(8) from any trade or business carried on by a partnership of which he is a member; except that in computing such gross income and deductions and such distributive share of partnership ordinary income or loss--
(1) there shall be excluded rentals from real estate and from personal property leased with the real estate (including such rentals paid in crop shares) together with the deductions attributable thereto, unless such rentals are received in the course of a trade or business as a real estate dealer;
. . . .
(13) there shall be excluded the distributive share of any item of income or loss of a limited partner, as such, other than guaranteed payments described in section 707(c) to that partner for services actually rendered to or on behalf of the partnership to the extent that those payments are established to be in the nature of remuneration for those services;
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§ 7701. Definitions
(a) When used in this title, where not otherwise distinctly expressed or manifestly incompatible with the intent thereof--
(1) Person.--The term "person" shall be construed to mean and include an individual, a trust, estate, partnership, association, company or corporation.
(2) Partnership and partner.--The term "partnership" includes a syndicate, group, pool, joint venture, or other unincorporated organization, through or by means of which any business, financial operation, or venture is carried on, and which is not, within the meaning of this title, a trust or estate or a corporation; and the term "partner" includes a member in such a syndicate, group, pool, joint venture, or organization.
(3) Corporation.--The term "corporation" includes associations, joint-stock companies, and insurance companies.
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(g) Clarification of fair market value in the case of nonrecourse indebtedness.--For purposes of subtitle A, in determining the amount of gain or loss (or deemed gain or loss) with respect to any property, the fair market value of such property shall be treated as being not less than the amount of any nonrecourse indebtedness to which such property is subject.
§ 7704. Certain publicly traded partnerships treated as corporations
(a) General rule.--For purposes of this title, except as provided in subsection (c), a publicly traded partnership shall be treated as a corporation.
(b) Publicly traded partnership.--For purposes of this section, the term "publicly traded partnership" means any partnership if--
(1) interests in such partnership are traded on an established securities market, or
(2) interests in such partnership are readily tradable on a secondary market (or the substantial equivalent thereof).
(c) Exception for partnerships with passive-type income.--
(1) In general.--Subsection (a) shall not apply to any publicly traded partnership for any taxable year if such partnership met the gross income requirements of paragraph (2) for such taxable year and each preceding taxable year beginning after December 31, 1987, during which the partnership (or any predecessor) was in existence. For purposes of the preceding sentence, a partnership shall not be treated as being in existence during any period before the 1st taxable year in which such partnership (or a predecessor) was a publicly traded partnership.
(2) Gross income requirements.--A partnership meets the gross income requirements of this paragraph for any taxable year if 90 percent or more of the gross income of such partnership for such taxable year consists of qualifying income.
. . . .
(d) Qualifying income.--For purposes of this section--
(1) In general.--Except as otherwise provided in this subsection, the term "qualifying income" means--
(A) interest,
(B) dividends,
(C) real property rents,
(D) gain from the sale or other disposition of real property (including property described in section 1221(a)(1)),
(E) income and gains derived from the exploration, development, mining or production, processing, refining, transportation (including pipelines transporting gas, oil, or products thereof), or the marketing of any mineral or natural resource (including fertilizer, geothermal energy, and timber),
(F) any gain from the sale or disposition of a capital asset (or property described in section 1231(b)) held for the production of income described in any of the foregoing subparagraphs of this paragraph, and
(G) in the case of a partnership described in the second sentence of subsection (c)(3), income and gains from commodities (not described in section 1221(a)(1)) or futures, forwards, and options with respect to commodities.
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(g) Exception for electing 1987 partnerships.
(1) In general. Subsection (a) shall not apply to an electing 1987 partnership.
(2) Electing 1987 partnership. For purposes of this subsection, the term "electing 1987 partnership" means any publicly traded partnership if--
(A) such partnership is an existing partnership (as defined in section 10211(c)(2) of the Revenue Reconciliation Act of 1987),
(B) subsection (a) has not applied (and without regard to subsection (c)(1) would not have applied) to such partnership for all prior taxable years beginning after December 31, 1987, and before January 1, 1998, and
(C) such partnership elects the application of this subsection, and consents to the application of the tax imposed by paragraph (3), for its first taxable year beginning after December 31, 1997.
A partnership which, but for this sentence, would be treated as an electing 1987 partnership shall cease to be so treated (and the election under subparagraph (C) shall cease to be in effect) as of the 1st day after December 31, 1997, on which there has been an addition of a substantial new line of business with respect to such partnership.
(3) Additional tax on electing partnerships.
(A) Imposition of tax. There is hereby imposed for each taxable year on the income of each electing 1987 partnership a tax equal to 3.5 percent of such partnership’s gross income for the taxable year from the active conduct of trades and businesses by the partnership.
(B) Adjustments in the case of tiered partnerships. For purposes of this paragraph, in the case of a partnership which is a partner in another partnership, the gross income referred to in subparagraph (A) shall include the partnership’s distributive share of the gross income of such other partnership from the active conduct of trades and businesses of such other partnership. A similar rule shall apply in the case of lower-tiered partnerships.
(C) Treatment of tax. For purposes of this title, the tax imposed by this paragraph shall be treated as imposed by chapter 1 other than for purposes of determining the amount of any credit allowable under chapter 1 and shall be paid by the partnership. Section 6655 shall be applied to such partnership with respect to such tax in the same manner as if the partnership were a corporation, such tax were imposed by section 11, and references in such section to taxable income were references to the gross income referred to in subparagraph (A).
(4) Election. An election and consent under this subsection shall apply to the taxable year for which made and all subsequent taxable years unless revoked by the partnership. Such revocation may be made without the consent of the Secretary, but, once so revoked, may not be reinstated.