(a) An entity is a passive entity only if:
(1) the entity is a general or limited partnership or a trust, other than a business trust;
(2) during the period on which margin is based, the entity’s federal gross income consists of at least 90 percent of the following income:
(A) dividends, interest, foreign currency exchange gain, periodic and nonperiodic payments with respect to notional principal contracts, option premiums, cash settlement or termination payments with respect to a financial instrument, and income from a limited liability company;
(B) distributive shares of partnership income to the extent that those distributive shares of income are greater than zero;
(C) capital gains from the sale of real property, gains from the sale of commodities traded on a commodities exchange, and gains from the sale of securities; and
(D) royalties, bonuses, or delay rental income from mineral properties and income from other nonoperating mineral interests; and
(3) the entity does not receive more than 10 percent of its federal gross income from conducting an active trade or business.
(a-1) In making the computation under Subsection (a)(3), income described by Subsection (a)(2) may not be treated as income from conducting an active trade or business.

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Terms Used In Texas Tax Code 171.0003

  • Partnership: A voluntary contract between two or more persons to pool some or all of their assets into a business, with the agreement that there will be a proportional sharing of profits and losses.
  • Settlement: Parties to a lawsuit resolve their difference without having a trial. Settlements often involve the payment of compensation by one party in satisfaction of the other party's claims.

(b) The income described by Subsection (a)(2) does not include:
(1) rent; or
(2) income received by a nonoperator from mineral properties under a joint operating agreement if the nonoperator is a member of an affiliated group and another member of that group is the operator under the same joint operating agreement.