8701 / How are the passive activities of publicly-traded partnerships treated under the passive loss rules?

Special restrictions apply to publicly traded partnerships under the passive loss rules. A publicly traded partnership is a partnership that is traded on an established securities market or is readily tradable on a secondary market (or the substantial equivalent thereof).¹

The rules are applied separately to items attributable to a publicly traded partnership, meaning that income, losses, and credits attributable to the partnership may not be aggregated with other income, losses, and credits of the taxpayer-partner for purposes of the passive loss rules.² Net passive loss from a publicly traded partnership will be treated as passive, while net passive income from a publicly traded partnership is to be treated as investment income.³

Generally, net passive loss from a publicly traded partnership is carried forward until the partner has additional passive income from the partnership or the partner disposes of the partnership interest. Also, the $25,000 rental real estate exemption (see Q 8700) is available with respect to a publicly traded partnership only in connection with the low-income housing credit and the rehabilitation investment credit.

Further, a taxpayer will not be treated as having disposed of the taxpayer’s entire interest in an activity of a publicly-traded partnership until the taxpayer has disposed of the entire interest in the partnership. It would seem that if a publicly traded partnership is taxed as a corporation, the partnership is not a taxpayer subject to the passive loss rules.⁴