§ 706.
(d)
Determination of distributive share when partner’s interest changes
(2)
Certain cash basis items prorated over period to which attributable
(A)
In general
If during any taxable year of the partnership there is a change in any partner’s interest in the partnership, then (except to the extent provided in regulations) each partner’s distributive share of any allocable cash basis item shall be determined—
(i)
by assigning the appropriate portion of such item to each day in the period to which it is attributable, and
(ii)
by allocating the portion assigned to any such day among the partners in proportion to their interests in the partnership at the close of such day.
(B)
Allocable cash basis item
For purposes of this paragraph, the term “allocable cash basis item” means any of the following items with respect to which the partnership uses the cash receipts and disbursements method of accounting:
(iii)
Payments for services or for the use of property.
(iv)
Any other item of a kind specified in regulations prescribed by the Secretary as being an item with respect to which the application of this paragraph is appropriate to avoid significant misstatements of the income of the partners.
(C)
Items attributable to periods not within taxable year
If any portion of any allocable cash basis item is attributable to—
(i)
any period before the beginning of the taxable year, such portion shall be assigned under subparagraph (A)(i) to the first day of the taxable year, or
(ii)
any period after the close of the taxable year, such portion shall be assigned under subparagraph (A)(i) to the last day of the taxable year.
(D)
Treatment of deductible items attributable to prior periods
If any portion of a deductible cash basis item is assigned under subparagraph (C)(i) to the first day of any taxable year—
(i)
such portion shall be allocated among persons who are partners in the partnership during the period to which such portion is attributable in accordance with their varying interests in the partnership during such period, and
(ii)
any amount allocated under clause (i) to a person who is not a partner in the partnership on such first day shall be capitalized by the partnership and treated in the manner provided for in section 755.
(3)
Items attributable to interest in lower tier partnership prorated over entire taxable year
If—
(A)
during any taxable year of the partnership there is a change in any partner’s interest in the partnership (hereinafter in this paragraph referred to as the “upper tier partnership”), and
(B)
such partnership is a partner in another partnership (hereinafter in this paragraph referred to as the “lower tier partnership”),
(4)
Taxable year determined without regard to subsection (c)(2)(A)
([Aug. 16, 1954, ch. 736], [68A Stat. 242]; [Pub. L. 94–455, title II, § 213(c)(1)], title XIX, § 1906(b)(13)(A), Oct. 4, 1976, [90 Stat. 1547], 1834; [Pub. L. 98–369, div. A, title I, § 72(a)], (b), July 18, 1984, [98 Stat. 589], 591; [Pub. L. 99–514, title VIII, § 806(a)], title XVIII, § 1805(a), Oct. 22, 1986, [100 Stat. 2362], 2810; [Pub. L. 100–647, title I, § 1008(e)(1)]–(3), Nov. 10, 1988, [102 Stat. 3439], 3440; [Pub. L. 105–34, title V, § 507(b)(2)], title XII, § 1246(a), (b), Aug. 5, 1997, [111 Stat. 857], 1030; [Pub. L. 115–141, div. U, title IV, § 401(a)(139)], Mar. 23, 2018, [132 Stat. 1191].)