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TITLE 26-INTERNAL REVENUE CODE another shall be considered to be created by gift from the seller, and the fair market value of the purchased interest shall be considered to be donated capital. The "family" of any in- dividual shall include only his spouse, ances- tors, and lineal descendants, and any trusts for thn. primary benefit of such persons. (f) Cross reference For rules in the case of the sale, exchange, liquidation, or reduction of a partner's Interest, see section 706(c)(2). (Aug. 16, 1954, ch. 736, 68A Stat. 240; Oct. 4, 1976, Pub. L. 94-455, title II, § 213(c)(2), (3)(A), (d), (e), title XIX, § 1906(b)(13)(A), 90 Stat. 1548, 1834.) AMENDMENTS 1976-Subsec. (a). Pub. L. 94-455, § 213(c)(2), substi- tuted "except as otherwise provided in this chapter" for "except as otherwise provided in this section". Subsec. (b). Pub. L. 94-455, § 213(d), among other changes, substituted subsec. catchline "Determination of distributive share" for "Distributive share deter- mined by income or loss ratio" and in provisions pre- ceding par. (1) "the partner's interest in the partner- ship (determined by taking into account all facts and circumstances)" for "his distributive share of taxable income or loss of the partnership, as described in sec- tion 702(a)(9), for the taxable year" and in par. (2) provision relating to a lack of substantial economic effect in a partnership agreement for provisions relat- ing to the partnership agreement's purpose being the avoidance or evasion of taxes. Subsec. (c)(2). Pub. L. 94-455, § 1906(b)(13)(A) struck out "or his delegate" following "Secretary". Subsec. (d). Pub. L. 94-455, § 213(e), added provisions relating to the determination of the adjusted basis of a partner's liability where there is no personal liability and the applicability of such determination where sec- tion 465 of this title applies or the principal activity of the partnership is real estate investment. Subsec. (f). Pub. L. 94-455, § 213(c)(3)(A), added subsec. (f). EFECTIVE DATE OF 1976 AMENDMENT Amendment of subsecs. (a), (b), (f) by section 213(c)(2), (c)(3)(A), (d) of Pub. L. 94-455 applicable in the case of partnership taxable years beginning after Dec. 31, 1975, see section 213(f)(1) of Pub. L. 94-455, set out as an Effective Date note under section 709 of this title. Amendment of subsec. d) by section 213(e) of Pub. L. 94-455 applicable to liabilities incurred after Dec. 31, 1976, see section 213(f)(2) of Pub. L. 94-455, set out as an Effective Date note under section 709 of this title. CRoss REFERENCES Optional adjustment to basis of partnership proper- ty, see section 743 of this title. SECTION REFEmuD TO IN OTHER SECTIONS This section is referred to in sections 743, 761, 1251, 1375 of this title. § 705. Determination of basis of partner's interest (a) General rule The adjusted basis of a partner's interest in a partnership shall, except as provided in subsec- tion (b) be the basis of such interest deter- mined under section 722 (relating to contribu- tions to a partnership) or section 742 (relating to transfers of partnership interests)- (1) increased by the sum of his distributive share for the taxable year and prior taxable years of- (A) taxable income of the partnership as determined under section 703(a), (B) income of the partnership exempt from tax under this title, and (C) the excess of the deductions for deple- tion over the basis of the property subject to depletion; (2) decreased (but not below zero) by distri- butions by the partnership as provided in sec- tion 733 and by the sum of his distributive share for the taxable year and prior taxable years of- (A) losses of the partnership, and (B) expenditures of the partnership not deductible in computing its taxable income and not properly chargeable to capital ac- count; and (3) decreased (but not below zero), by the amount of the partner's deduction for deple- tion under section 611 with respect to oil and gas wells. (b) Alternative rule The Secretary shall prescribe by regulations the circumstances under which the adjusted basis of a partner's' interest in a partnership may be determined by reference to his propor- tionate share of the adjusted basis of partner- ship property upon a termination of the part- nership. (Aug. 16, 1954, ch. 736, 68A Stat. 242; Oct. 4, 1976, Pub. L. 94-455, title XIX, § 1906(b)(13)(A), title XXI, § 2115(c)(3), 90 Stat. 1834, 1909.) 1976-Subsec. (a)(3). Pub. L. 94-455, § 2115(c)(3), added subsec. (a)(3). Subsec. (b). Pub. L. 94-455, § 1906(b)(13)(A), struck out "or his delegate" following "Secretary". EFECTIVE DATE OF 1976 AMENDMENT Amendment of subsec. (a)(3) by section 2115(c)(3) of Pub. L. 94-455 effective on Jan. 1, 1975, and applicable to taxable years ending after Dec. 31, 1974, see section 2115(f) of Pub. L. 94-455, set out as an Effective Date of 1976 Amendment note under section 613A of this title. CROSS REFERENCES Effective date, see section 771 of this title. SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in section 771 of this title. § 706. Taxable years of partner and partnership (a) Year in which partnership income is includible In computing the taxable income of a partner for a taxable year, the inclusions required by section 702 and section 707(c) with respect to a partnership shall be based on the income, gain, loss, deduction, or credit of the partnership for any taxable year of the partnership ending within or with the taxable year of the partner. (b) Adoption of taxable year (1) Partnership's taxable year The taxable year of a partnership shall be determined as though the partnership were a taxpayer. A partnership may not change to, or adopt, a taxable year other than that of all its principal partners unless it establishes, to the satisfaction of the Secretary, a business purpose therefor. 71-999 0 - 78 - 33 (Vol. 7) Page 485 § 706