7759 / Does a limited partner report partnership income and losses in the year a gift is made of a limited partnership interest?

A partner includes the distributive share of partnership items up to the time of the gift of the interest. The taxable year of the partnership closes with respect to the partner when the partner gives away his or her entire interest in the partnership, but does not close with respect to any other partner.¹ Thus, the distributive share of income or loss for the short partnership year resulting from the gift is included in the tax year in which the gift is made, because that is the year in which the short partnership year ends as to the donor partner. See Q 7736.

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Planning Point: If the partnership and partner have different years (i.e., the partnership is on a fiscal year and the individual uses a calendar tax year), it is possible that both a regular full partnership year and the short partnership year will end in the same year of the individual. Consequently, there can be a bunching of more than one year’s partnership income (or loss) in one year’s return of the individual. The partnership year does not end as to a partner who terminates less than the entire interest.²

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1. IRC § 706(c).

2. IRC § 706(c)(2)(B).

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