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26 U.S.C. § 731 — Extent of recognition of gain or loss on distribution
Federal law — U.S. Code and appendices · legal_authorities
**(a) Partners** In the case of a distribution by a partnership to a partner—
(1) gain shall not be recognized to such partner, except to the extent that any money distributed exceeds the adjusted basis of such partner’s interest in the partnership immediately before the distribution, and
(2) loss shall not be recognized to such partner, except that upon a distribution in liquidation of a partner’s interest in a partnership where no property other than that described in subparagraph (A) or (B) is distributed to such partner, loss shall be recognized to the extent of the excess of the adjusted basis of such partner’s interest in the partnership over the sum of—
(A) any money distributed, and
(B) the basis to the distributee, as determined under section 732, of any unrealized receivables (as defined in section 751(c)) and inventory (as defined in section 751(d)).
Any gain or loss recognized under this subsection shall be considered as gain or loss from the sale or exchange of the partnership interest of the distributee partner.
**(b) Partnerships** No gain or loss shall be recognized to a partnership on a distribution to a partner of property, including money.
**(c) Treatment of marketable securities**
(1) **In general** — For purposes of subsection (a)(1) and section 737—
(A) the term “money” includes marketable securities, and
(B) such securities shall be taken into account at their fair market value as of the date of the distribution.
(2) **Marketable securities** — For purposes of this subsection:
(A) *In general* — The term “marketable securities” means financial instruments and foreign currencies which are, as of the date of the distribution, actively traded (within the meaning of section 1092(d)(1)).
(B) *Other property* — Such term includes
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Source location: Title 26, Chapter 1, § 731; chapter-001-normal-taxes-and-surtaxes.md
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**(a) Partners** In the case of a distribution by a partnership to a partner—
(1) gain shall not be recognized to such partner, except to the extent that any money distributed exceeds the adjusted basis of such partner’s interest in the partnership immediately before the distribution, and
(2) loss shall not be recognized to such partner, except that upon a distribution in liquidation of a partner’s interest in a partnership where no property other than that described in subparagraph (A) or (B) is distributed to such partner, loss shall be recognized to the extent of the excess of the adjusted basis of such partner’s interest in the partnership over the sum of—
(A) any money distributed, and
(B) the basis to the distributee, as determined under section 732, of any unrealized receivables (as defined in section 751(c)) and inventory (as defined in section 751(d)).
Any gain or loss recognized under this subsection shall be considered as gain or loss from the sale or exchange of the partnership interest of the distributee partner.
**(b) Partnerships** No gain or loss shall be recognized to a partnership on a distribution to a partner of property, including money.
**(c) Treatment of marketable securities**
(1) **In general** — For purposes of subsection (a)(1) and section 737—
(A) the term “money” includes marketable securities, and
(B) such securities shall be taken into account at their fair market value as of the date of the distribution.
(2) **Marketable securities** — For purposes of this subsection:
(A) *In general* — The term “marketable securities” means financial instruments and foreign currencies which are, as of the date of the distribution, actively traded (within the meaning of section 1092(d)(1)).
(B) *Other property* — Such term includes—
(i) any interest in—
(I) a common trust fund, or
(II) a regulated investment company which is offering for sale or has outstanding any redeemable security (as defined in section 2(a)(32) of the Investment Company Act of 1940) of which it is the issuer,
(ii) any financial instrument which, pursuant to its terms or any other arrangement, is readily convertible into, or exchangeable for, money or marketable securities,
(iii) any financial instrument the value of which is determined substantially by reference to marketable securities,
(iv) except to the extent provided in regulations prescribed by the Secretary, any interest in a precious metal which, as of the date of the distribution, is actively traded (within the meaning of section 1092(d)(1)) unless such metal was produced, used, or held in the active conduct of a trade or business by the partnership,
(v) except as otherwise provided in regulations prescribed by the Secretary, interests in any entity if substantially all of the assets of such entity consist (directly or indirectly) of marketable securities, money, or both, and
(vi) to the extent provided in regulations prescribed by the Secretary, any interest in an entity not described in clause (v) but only to the extent of the value of such interest which is attributable to marketable securities, money, or both.
(C) *Financial instrument* — The term “financial instrument” includes stocks and other equity interests, evidences of indebtedness, options, forward or futures contracts, notional principal contracts, and derivatives.
(3) **Exceptions**
(A) *In general* — Paragraph (1) shall not apply to the distribution from a partnership of a marketable security to a partner if—
(i) the security was contributed to the partnership by such partner, except to the extent that the value of the distributed security is attributable to marketable securities or money contributed (directly or indirectly) to the entity to which the distributed security relates,
(ii) to the extent provided in regulations prescribed by the Secretary, the property was not a marketable security when acquired by such partnership, or
(iii) such partnership is an investment partnership and such partner is an eligible partner thereof.
(B) *Limitation on gain recognized* — In the case of a distribution of marketable securities to a partner, the amount taken into account under paragraph (1) shall be reduced (but not below zero) by the excess (if any) of—
(i) such partner’s distributive share of the net gain which would be recognized if all of the marketable securities of the same class and issuer as the distributed securities held by the partnership were sold (immediately before the transaction to which the distribution relates) by the partnership for fair market value, over
(ii) such partner’s distributive share of the net gain which is attributable to the marketable securities of the same class and issuer as the distributed securities held by the partnership immediately after the transaction, determined by using the same fair market value as used under clause (i).
Under regulations prescribed by the Secretary, all marketable securities held by the partnership may be treated as marketable securities of the same class and issuer as the distributed securities.
(C) *Definitions relating to investment partnerships* — For purposes of subparagraph (A)(iii):
(i) *Investment partnership* — The term “investment partnership” means any partnership which has never been engaged in a trade or business and substantially all of the assets (by value) of which have always consisted of—
(I) money,
(II) stock in a corporation,
(III) notes, bonds, debentures, or other evidences of indebtedness,
(IV) interest rate, currency, or equity notional principal contracts,
(V) foreign currencies,
(VI) interests in or derivative financial instruments (including options, forward or futures contracts, short positions, and similar financial instruments) in any asset described in any other subclause of this clause or in any commodity traded on or subject to the rules of a board of trade or commodity exchange,
(VII) other assets specified in regulations prescribed by the Secretary, or
(VIII) any combination of the foregoing.
(ii) *Exception for certain activities* — A partnership shall not be treated as engaged in a trade or business by reason of—
(I) any activity undertaken as an investor, trader, or dealer in any asset described in clause (i), or
(II) any other activity specified in regulations prescribed by the Secretary.
(iii) *Eligible partner*
(I) *In general* — The term “eligible partner” means any partner who, before the date of the distribution, did not contribute to the partnership any property other than assets described in clause (i).
(II) *Exception for certain nonrecognition transactions* — The term “eligible partner” shall not include the transferor or transferee in a nonrecognition transaction involving a transfer of any portion of an interest in a partnership with respect to which the transferor was not an eligible partner.
(iv) *Look-thru of partnership tiers* — Except as otherwise provided in regulations prescribed by the Secretary—
(I) a partnership shall be treated as engaged in any trade or business engaged in by, and as holding (instead of a partnership interest) a proportionate share of the assets of, any other partnership in which the partnership holds a partnership interest, and
(II) a partner who contributes to a partnership an interest in another partnership shall be treated as contributing a proportionate share of the assets of the other partnership.
If the preceding sentence does not apply under such regulations with respect to any interest held by a partnership in another partnership, the interest in such other partnership shall be treated as if it were specified in a subclause of clause (i).
(4) **Basis of securities distributed**
(A) *In general* — The basis of marketable securities with respect to which gain is recognized by reason of this subsection shall be—
(i) their basis determined under section 732, increased by
(ii) the amount of such gain.
(B) *Allocation of basis increase* — Any increase in basis attributable to the gain described in subparagraph (A)(ii) shall be allocated to marketable securities in proportion to their respective amounts of unrealized appreciation before such increase.
(5) **Subsection disregarded in determining basis of partner’s interest in partnership and of basis of partnership property** — Sections 733 and 734 shall be applied as if no gain were recognized, and no adjustment were made to the basis of property, under this subsection.
(6) **Character of gain recognized** — In the case of a distribution of a marketable security which is an unrealized receivable (as defined in section 751(c)) or an inventory item (as defined in section 751(d)), any gain recognized under this subsection shall be treated as ordinary income to the extent of any increase in the basis of such security attributable to the gain described in paragraph (4)(A)(ii).
(7) **Regulations** — The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this subsection, including regulations to prevent the avoidance of such purposes.
**(d) Exceptions** This section shall not apply to the extent otherwise provided by section 736 (relating to payments to a retiring partner or a deceased partner’s successor in interest), section 751 (relating to unrealized receivables and inventory items), and section 737 (relating to recognition of precontribution gain in case of certain distributions).
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Federal law — U.S. Code and appendices · legal_authorities
**(a) Effect of partnership agreement** A partner’s distributive share of income, gain, loss, deduction, or credit shall, except as otherwise provided in this chapter, be determined by the partnership agreement.
**(b) Determination of distributive share** A partner’s distributive share of income, gain, loss, deduction, or credit (or item thereof) shall be determined in accordance with the partner’s interest in the partnership (determined by taking into account all facts and circumstances), if—
(1) the partnership agreement does not provide as to the partner’s distributive share of income, gain, loss, deduction, or credit (or item thereof), or
(2) the allocation to a partner under the agreement of income, gain, loss, deduction, or credit (or item thereof) does not have substantial economic effect.
**(c) Contributed property**
(1) **In general** — Under regulations prescribed by the Secretary—
(A) income, gain, loss, and deduction with respect to property contributed to the partnership by a partner shall be shared among the partners so as to take account of the variation between the basis of the property to the partnership and its fair market value at the time of contribution,
(B) if any property so contributed is distributed (directly or indirectly) by the partnership (other than to the contributing partner) within 7 years of being contributed—
(i) the contributing partner shall be treated as recognizing gain or loss (as the case may be) from the sale of such property in an amount equal to the gain or loss which would have been allocated to such partner under subparagraph (A) by reason of the variation described in subparagraph (A) if the property had been sold at its fair market value at the time of the distribution,
(ii) the character of such gain
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Federal law — U.S. Code and appendices · legal_authorities
**(a) General rule** For purposes of this title, except as provided in subsection (c), a publicly traded partnership shall be treated as a corporation.
**(b) Publicly traded partnership** For purposes of this section, the term “publicly traded partnership” means any partnership if—
(1) interests in such partnership are traded on an established securities market, or
(2) interests in such partnership are readily tradable on a secondary market (or the substantial equivalent thereof).
**(c) Exception for partnerships with passive-type income**
(1) **In general** — Subsection (a) shall not apply to any publicly traded partnership for any taxable year if such partnership met the gross income requirements of paragraph (2) for such taxable year and each preceding taxable year beginning after December 31, 1987, during which the partnership (or any predecessor) was in existence. For purposes of the preceding sentence, a partnership shall not be treated as being in existence during any period before the 1st taxable year in which such partnership (or a predecessor) was a publicly traded partnership.
(2) **Gross income requirements** — A partnership meets the gross income requirements of this paragraph for any taxable year if 90 percent or more of the gross income of such partnership for such taxable year consists of qualifying income.
(3) **Exception not to apply to certain partnerships which could qualify as regulated investment companies** — This subsection shall not apply to any partnership which would be described in section 851(a) if such partnership were a domestic corporation. To the extent provided in regulations, the preceding sentence shall not apply to any partnership a principal activity of which is the buying and selling of commodities (not described in section
Source: Supplied U.S. Code snapshot — release unconfirmed · 26 U.S.C. § 7704
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Federal law — U.S. Code and appendices · legal_authorities
**(a) General rule** In the case of any distribution by a partnership to a partner, such partner shall be treated as recognizing gain in an amount equal to the lesser of—
(1) the excess (if any) of (A) the fair market value of property (other than money) received in the distribution over (B) the adjusted basis of such partner’s interest in the partnership immediately before the distribution reduced (but not below zero) by the amount of money received in the distribution, or
(2) the net precontribution gain of the partner.
Gain recognized under the preceding sentence shall be in addition to any gain recognized under section 731. The character of such gain shall be determined by reference to the proportionate character of the net precontribution gain.
**(b) Net precontribution gain** For purposes of this section, the term “net precontribution gain” means the net gain (if any) which would have been recognized by the distributee partner under section 704(c)(1)(B) if all property which—
(1) had been contributed to the partnership by the distributee partner within 7 years of the distribution, and
(2) is held by such partnership immediately before the distribution,
had been distributed by such partnership to another partner.
**(c) Basis rules**
(1) **Partner’s interest** — The adjusted basis of a partner’s interest in a partnership shall be increased by the amount of any gain recognized by such partner under subsection (a). For purposes of determining the basis of the distributed property (other than money), such increase shall be treated as occurring immediately before the distribution.
(2) **Partnership’s basis in contributed property** — Appropriate adjustments shall be made to the adjusted basis of the partnership in the contributed property referred to in subsecti
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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 1876
TITLE 26—INTERNAL REVENUE CODE
§ 731
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 con-
tribution 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 part-
nership, 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 contribu-
tion shall be treated as a loss from the sale of a
capital asset to the extent that, immediately be-
fore such contribution, the adjusted basis of
such property in the hands of the partner ex-
ceeded 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) (de-
termined 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 section 751(d) (determined
by treating any reference to the partnership as
referring to the partner and by applying sec-
tion 1231 without regard to any holding period
therein provided).
(3) Substituted basis property
(A) In general
If any property described in subsection (a),
(b), or (c) 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
non-re
Source: Supplied 2024 U.S. Code historical extraction · 26 U.S.C. § 731
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