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26 U.S.C. § 735 — Character of gain or loss on disposition of distributed property
Federal law — U.S. Code and appendices · legal_authorities
**(a) Sale or exchange of certain distributed property**
(1) **Unrealized receivables** — Gain or loss on the disposition by a distributee partner of unrealized receivables (as defined in section 751(c)) distributed by a partnership, shall be considered as ordinary income or as ordinary loss, as the case may be.
(2) **Inventory items** — Gain or loss on the sale or exchange by a distributee partner of inventory items (as defined in section 751(d)) distributed by a partnership shall, if sold or exchanged within 5 years from the date of the distribution, be considered as ordinary income or as ordinary loss, as the case may be.
**(b) Holding period for distributed property** In determining the period for which a partner has held property received in a distribution from a partnership (other than for purposes of subsection (a)(2)), there shall be included the holding period of the partnership, as determined under section 1223, with respect to such property.
**(c) Special rules**
(1) **Waiver of holding periods contained in section 1231** — For purposes of this section, section 751(d) (defining inventory item) shall be applied without regard to any holding period in section 1231(b).
(2) **Substituted basis property**
(A) *In general* — If any property described in subsection (a) is disposed of in a nonrecognition transaction, the tax treatment which applies to such property under such subsection shall also apply to any substituted basis property resulting from such transaction. A similar rule shall also apply in the case of a series of nonrecognition transactions.
(B) *Exception for stock in C corporation* — Subparagraph (A) shall not apply to any stock in a C corporation received in an exchange described in section 351.
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Source file: Laws/federal/codes/united-states-code/title-26/section-735-character-of-gain-or-loss-on-disposition-of-distributed-property--a0803db616.md
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Source location: Title 26, Chapter 1, § 735; chapter-001-normal-taxes-and-surtaxes.md
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**(a) Sale or exchange of certain distributed property**
(1) **Unrealized receivables** — Gain or loss on the disposition by a distributee partner of unrealized receivables (as defined in section 751(c)) distributed by a partnership, shall be considered as ordinary income or as ordinary loss, as the case may be.
(2) **Inventory items** — Gain or loss on the sale or exchange by a distributee partner of inventory items (as defined in section 751(d)) distributed by a partnership shall, if sold or exchanged within 5 years from the date of the distribution, be considered as ordinary income or as ordinary loss, as the case may be.
**(b) Holding period for distributed property** In determining the period for which a partner has held property received in a distribution from a partnership (other than for purposes of subsection (a)(2)), there shall be included the holding period of the partnership, as determined under section 1223, with respect to such property.
**(c) Special rules**
(1) **Waiver of holding periods contained in section 1231** — For purposes of this section, section 751(d) (defining inventory item) shall be applied without regard to any holding period in section 1231(b).
(2) **Substituted basis property**
(A) *In general* — If any property described in subsection (a) is disposed of in a nonrecognition transaction, the tax treatment which applies to such property under such subsection shall also apply to any substituted basis property resulting from such transaction. A similar rule shall also apply in the case of a series of nonrecognition transactions.
(B) *Exception for stock in C corporation* — Subparagraph (A) shall not apply to any stock in a C corporation received in an exchange described in section 351.
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Federal law — U.S. Code and appendices · legal_authorities
**(a) Definition of surviving spouse**
(1) **In general** — For purposes of section 1, the term “surviving spouse” means a taxpayer—
(A) whose spouse died during either of his two taxable years immediately preceding the taxable year, and
(B) who maintains as his home a household which constitutes for the taxable year the principal place of abode (as a member of such household) of a dependent (i) who (within the meaning of section 152, determined without regard to subsections (b)(1), (b)(2), and (d)(1)(B) thereof) is a son, stepson, daughter, or stepdaughter of the taxpayer, and (ii) with respect to whom the taxpayer is entitled to a deduction for the taxable year under section 151.
(2) **Limitations** — Notwithstanding paragraph (1), for purposes of section 1 a taxpayer shall not be considered to be a surviving spouse—
(A) if the taxpayer has remarried at any time before the close of the taxable year, or
(B) unless, for the taxpayer’s taxable year during which his spouse died, a joint return could have been made under the provisions of section 6013 (without regard to subsection (a)(3) thereof).
(3) **Special rule where deceased spouse was in missing status** — If an individual was in a missing status (within the meaning of section 6013(f)(3)) as a result of service in a combat zone (as determined for purposes of section 112) and if such individual remains in such status until the date referred to in subparagraph (A) or (B), then, for purposes of paragraph (1)(A), the date on which such individual died shall be treated as the earlier of the date determined under subparagraph (A) or the date determined under subparagraph (B):
(A) the date on which the determination is made under [section 556 of title 37](https://uscode.house.gov/view.xhtml?req=granuleid:
Source: Supplied U.S. Code snapshot — release unconfirmed · 26 U.S.C. § 2
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Federal law — U.S. Code and appendices · legal_authorities
**(a) Contributions of unrealized receivables** In the case of any property which—
(1) was contributed to the partnership by a partner, and
(2) was an unrealized receivable in the hands of such partner immediately before such contribution,
any gain or loss recognized by the partnership on the disposition of such property shall be treated as ordinary income or ordinary loss, as the case may be.
**(b) Contributions of inventory items** In the case of any property which—
(1) was contributed to the partnership by a partner, and
(2) was an inventory item in the hands of such partner immediately before such contribution,
any gain or loss recognized by the partnership on the disposition of such property during the 5-year period beginning on the date of such contribution shall be treated as ordinary income or ordinary loss, as the case may be.
**(c) Contributions of capital loss property** In the case of any property which—
(1) was contributed by a partner to the partnership, and
(2) was a capital asset in the hands of such partner immediately before such contribution,
any loss recognized by the partnership on the disposition of such property during the 5-year period beginning on the date of such contribution shall be treated as a loss from the sale of a capital asset to the extent that, immediately before such contribution, the adjusted basis of such property in the hands of the partner exceeded the fair market value of such property.
**(d) Definitions** For purposes of this section—
(1) **Unrealized receivable** — The term “unrealized receivable” has the meaning given such term by section 751(c) (determined by treating any reference to the partnership as referring to the partner).
(2) **Inventory item** — The term “inventory item” has the meaning given such term by
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Federal law — U.S. Code and appendices · legal_authorities
Page 1882
TITLE 26—INTERNAL REVENUE CODE
§ 735
Subsec. (b). Pub. L. 109–135, § 403(bb)(2), reenacted
heading without change and amended introductory pro-
visions generally. Prior to amendment, introductory
provisions read as follows: ‘‘In the case of a distribu-
tion of property to a partner, a partnership, with re-
spect to which the election provided in section 754 is in
effect or unless there is a substantial basis reduction,
shall—’’.
2004—Pub. L. 108–357, § 833(c)(5)(A), substituted ‘‘Ad-
justment to basis of undistributed partnership property
where section 754 election or substantial basis reduc-
tion’’ for ‘‘Optional adjustment to basis of undistrib-
uted partnership property’’ in section catchline.
Subsec. (a). Pub. L. 108–357, § 833(c)(1), inserted ‘‘or
unless there is a substantial basis reduction’’ before pe-
riod at end.
Subsec. (b). Pub. L. 108–357, § 833(c)(2), inserted ‘‘or
unless there is a substantial basis reduction’’ after
‘‘section 754 is in effect’’ in introductory provisions.
Subsec. (d). Pub. L. 108–357, § 833(c)(3), added subsec.
(d).
Subsec. (e). Pub. L. 108–357, § 833(c)(4), added subsec.
(e).
1984—Subsec. (b). Pub. L. 98–369 inserted at end
‘‘Paragraph (1)(B) shall not apply to any distributed
property which is an interest in another partnership
with respect to which the election provided in section
754 is not in effect.’’
Statutory Notes and Related Subsidiaries
EFFECTIVE DATE OF 2005 AMENDMENT
Amendment by Pub. L. 109–135 effective as if included
in the provision of the American Jobs Creation Act of
2004, Pub. L. 108–357, to which such amendment relates,
see section 403(nn) of Pub. L. 109–135, set out as a note
under section 26 of this title.
EFFECTIVE DATE OF 2004 AMENDMENT
Pub. L. 108–357, title VIII, § 833(d)(3
Source: Supplied 2024 U.S. Code historical extraction · 26 U.S.C. § 735
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