Publicly Traded Partnership Passive Income Exception

§ 7704. Certain publicly traded partnerships treated as corporations(a) General ruleFor purposes of this title, except as provided in subsection (c), a publicly traded partnership shall be treated as a corporation. (b) Publicly traded partnershipFor 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 generalSubsection (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 requirementsA 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. (3) Exception not to apply to certain partnerships which could qualify as regulated investment companiesThis subsection shall not apply to any partnership which would be described in section 851(a) if such partnership were a domestic corporation. To the extent provided in regulations, the preceding sentence shall not apply to any partnership a principal activity of which is the buying and selling of commodities (not described in section 1221(a)(1)), or options, futures, or forwards with respect to commodities. (d) Qualifying incomeFor purposes of this section—(1) In generalExcept 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—(i) 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), or industrial source carbon dioxide, (ii) the transportation or storage of—(I) any fuel described in subsection (b), (c), (d), (e), or (k) of section 6426, or any alcohol fuel defined in section 6426(b)(4)(A) or any biodiesel fuel as defined in section 40A(d)(1) or sustainable aviation fuel as defined in section 40B(d)(1), or (II) liquified hydrogen or compressed hydrogen,