Character of partnership income; procedure if partner’s treatment of item inconsistent with partnership treatment; rules

(1) Each item of partnership income, gain, loss or deduction has the same character for a partner as it has for federal income tax purposes. If an item is not characterized for federal income tax purposes, it has the same character for a partner as if realized directly from the source from which realized by the partnership or incurred in the same manner as incurred by the partnership. (2) A partner’s distributive share of an item of partnership income, gain, loss or deduction (or item thereof) shall be that partner’s distributive share of partnership income, gain, loss or deduction (or item thereof) for federal income tax purposes as determined under section 704 of the Internal Revenue Code and adjusted for the modifications, additions and subtractions provided in this chapter and ORS chapters 316, 317 and 318. (3) A partner shall, on the partner’s return, treat a partnership item in a manner that is consistent with the treatment of the partnership item on the partnership return, unless the partner notifies the Department of Revenue of the inconsistency. The department shall prescribe by rule the method for notification of an inconsistency.