[Code of Federal Regulations]
[Title 26, Volume 8]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.703-1]

[Page 360-361]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
Determination of Tax Liability--Table of Contents
 
Sec. 1.703-1  Partnership computations.

    (a) Income and deductions. (1) The taxable income of a partnership 
shall be computed in the same manner as the taxable income of an 
individual, except as otherwise provided in this section. A partnership 
is required to state separately in its return the items described in 
section 702(a)(1) through (7) and, in addition, to attach to its return 
a statement setting forth separately those items described in section 
702(a)(8) which the partner is required to take into account separately 
in determining his income tax. See paragraph (a)(8) of Sec. 1.702-1. 
The partnership is further required to compute and to state separately 
in its return:
    (i) As taxable income under section 702(a)(9), the total of all 
other items of gross income (not separately stated) over the total of 
all other allowable deductions (not separately stated), or

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    (ii) As loss under section 702(a)(9), the total of all other 
allowable deductions (not separately stated) over the total of all other 
items of gross income (not separately stated).

The taxable income or loss so computed shall be accounted for by the 
partners in accordance with their partnership agreement.
    (2) The partnership is not allowed the following deductions:
    (i) The standard deduction provided in section 141.
    (ii) The deduction for personal exemptions provided in section 151.
    (iii) The deduction provided in section 164(a) for taxes, described 
in section 901, paid or accrued to foreign countries or possessions of 
the United States. Each partner's distributive share of such taxes shall 
be accounted for separately by him as provided in section 702(a)(6).
    (iv) The deduction for charitable contributions provided in section 
170. Each partner is considered as having paid within his taxable year 
his distributive share of any contribution or gift, payment of which was 
actually made by the partnership within its taxable year ending within 
or with the partner's taxable year. This item shall be accounted for 
separately by the partners as provided in section 702(a)(4). See also 
paragraph (b) of Sec. 1.702-1.
    (v) The net operating loss deduction provided in section 172. See 
Sec. 1.702-2.
    (vi) The additional itemized deductions for individuals provided in 
part VII, subchapter B, chapter 1 of the Code, as follows: Expenses for 
production of income (section 212); medical, dental, etc., expenses 
(section 213); expenses for care of certain dependents (section 214); 
alimony, etc., payments (section 215); and amounts representing taxes 
and interest paid to cooperative housing corporation (section 216). 
However, see paragraph (a)(8) of Sec. 1.702-1.
    (vii) The deduction for depletion under section 611 with respect to 
domestic oil or gas which is produced after December 31, 1974, and to 
which gross income from the property is attributable after such year.
    (viii) The deduction for capital gains provided by section 1202 and 
the deduction for capital loss carryover provided by section 1212.
    (b) Elections of the partnership--(1) General rule. Any elections 
(other than those described in subparagraph (2) of this paragraph) 
affecting the computation of income derived from a partnership shall be 
made by the partnership. For example, elections of methods of 
accounting, of computing depreciation, of treating soil and water 
conservation expenditures, and the option to deduct as expenses 
intangible drilling and development costs, shall be made by the 
partnership and not by the partners separately. All partnership 
elections are applicable to all partners equally, but any election made 
by a partnership shall not apply to any partner's nonpartnership 
interests.
    (2) Exceptions. (i) Each partner shall add his distributive share of 
taxes described in section 901 paid or accrued by the partnership to 
foreign countries or possessions of the United States (according to its 
method of treating such taxes) to any such taxes paid or accrued by him 
(according to his method of treating such taxes), and may elect to use 
the total amount either as a credit against tax or as a deduction from 
income.
    (ii) Each partner shall add his distributive share of expenses 
described in section 615 or section 617 paid or accrued by the 
partnership to any such expenses paid or accrued by him and shall treat 
the total amount according to his method of treating such expenses, 
notwithstanding the treatment of the expenses by the partnership.
    (iii) Each partner who is a nonresident alien individual or a 
foreign corporation shall add his distributive share of income derived 
by the partnership from real property located in the United States, as 
described in section 871(d)(1) or 882(d)(1), to any such income derived 
by him and may elect under Sec. 1.871-10 to treat all such income as 
income which is effectively connected for the taxable year with the 
conduct of a trade or business in the United States.

[T.D. 6500, 25 FR 11814, Nov. 26, 1960, as amended by T.D. 7192, 37 FR 
12949, June 30, 1972; T.D. 7332, 39 FR 44232, Dec. 23, 1974; T.D. 8348, 
56 FR 21952, May 13, 1991]

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