26 U.S.C. § 709

Treatment of organization and syndication fees

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(a) General rule

Except as provided in subsection (b), no deduction shall be allowed under this chapter to the partnership or to any partner for any amounts paid or incurred to organize a partnership or to promote the sale of (or to sell) an interest in such partnership.

(b) Deduction of organization fees(1) Allowance of deductionIf a partnership elects the application of this subsection (in accordance with regulations prescribed by the Secretary) with respect to any organizational expenses—(A) the partnership shall be allowed a deduction for the taxable year in which the partnership begins business in an amount equal to the lesser of—(i) the amount of organizational expenses with respect to the partnership, or(ii) $5,000, reduced (but not below zero) by the amount by which such organizational expenses exceed $50,000, and(B) the remainder of such organizational expenses shall be allowed as a deduction ratably over the 180-month period beginning with the month in which the partnership begins business.(2) Dispositions before close of amortization period

In any case in which a partnership is liquidated before the end of the period to which paragraph (1)(B) applies, any deferred expenses attributable to the partnership which were not allowed as a deduction by reason of this section may be deducted to the extent allowable under section 165.

(3) Organizational expenses definedThe organizational expenses to which paragraph (1) applies, are expenditures which—(A) are incident to the creation of the partnership;(B) are chargeable to capital account; and(C) are of a character which, if expended incident to the creation of a partnership having an ascertainable life, would be amortized over such life.(Added Pub. L. 94–455, title II, § 213(b)(1), Oct. 4, 1976, 90 Stat. 1547; amended Pub. L. 108–357, title VIII, § 902(c), Oct. 22, 2004, 118 Stat. 1651; Pub. L. 109–135, title IV, § 403(ll), Dec. 21, 2005, 119 Stat. 2632.)Editorial NotesAmendments

2005—Subsec. (b)(1). Pub. L. 109–135 substituted “partnership” for “taxpayer” in introductory provisions and before “shall be allowed” in subpar. (A).

2004—Subsec. (b). Pub. L. 108–357 substituted “Deduction” for “Amortization” in heading, added par. (2), redesignated former par. (2) as (3), and amended heading and text of par. (1) generally. Prior to amendment, text of par. (1) read as follows: “Amounts paid or incurred to organize a partnership may, at the election of the partnership (made in accordance with regulations prescribed by the Secretary), be treated as deferred expenses. Such deferred expenses shall be allowed as a deduction ratably over such period of not less than 60 months as may be selected by the partnership (beginning with the month in which the partnership begins business), or if the partnership is liquidated before the end of such 60-month period, such deferred expenses (to the extent not deducted under this section) may be deducted to the extent provided in section 165.”

Statutory Notes and Related SubsidiariesEffective Date of 2005 Amendment

Amendment by Pub. L. 109–135 effective as if included in the provision of the American Jobs Creation Act of 2004, Pub. L. 108–357, to which such amendment relates, see section 403(nn) of Pub. L. 109–135, set out as a note under section 26 of this title.

Effective Date of 2004 Amendment

Amendment by Pub. L. 108–357 applicable to amounts paid or incurred after Oct. 22, 2004, see section 902(d) of Pub. L. 108–357, set out as a note under section 195 of this title.

Effective Date

Pub. L. 94–455, title II, § 213(f), Oct. 4, 1976, 90 Stat. 1548, as amended by Pub. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, provided that:“(1)In general.—Except as otherwise provided in this subsection, the amendments made by this section [enacting this section and amending sections 179, 704, 706, 707, and 761 of this title] shall apply in the case of partnership taxable years beginning after December 31, 1975.“(2)Subsection (e).—The amendment made by subsection (e) [amending section 704 of this title] shall apply to liabilities incurred after December 31, 1976.“(3)Section 709(b) of the code.—Section 709(b) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as added by the amendment made by subsection (b)(1) of this section) shall apply in the case of amounts paid or incurred in taxable years beginning after December 31, 1976.”

Notes of Decisions

Cited in 5 cases, 1985–1992 · leading case: John K. Johnsen Frances Johnsen, Cross-Appellants v. Comm'r of Internal Revenue, Cross-Appellee, 794 F.2d 1157 (6th Cir. 1986).

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John K. Johnsen Frances Johnsen, Cross-Appellants v. Comm'r of Internal Revenue, Cross-Appellee, 794 F.2d 1157 (6th Cir. 1986). “Finally, the Commissioner determined that taxpayer had failed to show that deductibility of the expenses was not prohibited by 26 U.S.C. § 709 and that the expenses did not represent non-deductible organizational or syndication expenses of the partnership.”

Alex A. Aboussie, Alice Aboussie, Robert Aboussie & Linda Aboussie v. United States, 779 F.2d 424 (8th Cir. 1985). “26 U.S.C. § 709 (b)(l)(1982). The Government contends, however, that the Aboussies were still not entitled to any deduction for organizational expenses in 1978 because the partnership did not “be *430 gin business” under section 709 during that year.”

Martin H. Fishman v. Comm'r of Internal Revenue, 837 F.2d 309 (7th Cir. 1988). “The Tax Court held that the $9,000 brokerage fee paid to secure the standby commitment for the permanent mortgage was a capital expenditure that must be amortized over the life of the mortgage and that the professional fees were nondeductible partnership organizational expenses…”

Randall S. Goulding v. United States, 957 F.2d 1420 (7th Cir. 1992). “See 26 U.S.C. § 709 . Thus Mr. Goulding was negligent in deducting legal fees incurred in connection with the drafting of private placement memoranda and other start-up costs.”

Daniel R. McCarthy v. United States of Am. (Irs), 807 F.2d 1306 (6th Cir. 1986). “As the government notes, 26 U.S.C. § 709 (b) permits amortization of partnership organizational expenditures.”

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