Section 7704 of the Internal Revenue Code (I.R.C.), enacted in 1987, is the key law defining publicly traded partnerships and their tax treatment. The essence of section 7704 is simple: publicly traded partnerships which derive at least 90% of their income from qualifying sources will retain partnership tax treatment—i.e., they will pay no entity level tax and all tax items will flow through to the partners. All other partnerships which are publicly traded will taxed as corporations, paying a corporate tax, with partnership distributions treated as taxable dividends.

What is a Publicly Traded Partnership?

Additional detail is provided in Treasury regulations, 26 CFR §7704-1.