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26 U.S.C. § 737 — Recognition of precontribution gain in case of certain distributions to contributing partner
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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Source file: Laws/federal/codes/united-states-code/title-26/section-737-recognition-of-precontribution-gain-in-case-of-certain-distributions-to--8faa33b415.md
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Source location: Title 26, Chapter 1, § 737; chapter-001-normal-taxes-and-surtaxes.md
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**(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 subsection (b) to reflect gain recognized under subsection (a).
**(d) Exceptions**
(1) **Distributions of previously contributed property** — If any portion of the property distributed consists of property which had been contributed by the distributee partner to the partnership, such property shall not be taken into account under subsection (a)(1) and shall not be taken into account in determining the amount of the net precontribution gain. If the property distributed consists of an interest in an entity, the preceding sentence shall not apply to the extent that the value of such interest is attributable to property contributed to such entity after such interest had been contributed to the partnership.
(2) **Coordination with section 751** — This section shall not apply to the extent section 751(b) applies to such distribution.
**(e) Marketable securities treated as money** For treatment of marketable securities as money for purposes of this section, see section 731(c).
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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
Source: Supplied U.S. Code snapshot — release unconfirmed · 26 U.S.C. § 731
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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
Source: Supplied U.S. Code snapshot — release unconfirmed · 26 U.S.C. § 704
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Federal law — U.S. Code and appendices · legal_authorities
Page 1883
TITLE 26—INTERNAL REVENUE CODE
§ 737
except as provided in subsection (b), be consid-
ered—
(1) as a distributive share to the recipient of
partnership income if the amount thereof is
determined with regard to the income of the
partnership, or
(2) as a guaranteed payment described in
section 707(c) if the amount thereof is deter-
mined without regard to the income of the
partnership.
(b) Payments for interest in partnership
(1) General rule
Payments made in liquidation of the inter-
est of a retiring partner or a deceased partner
shall, to the extent such payments (other than
payments described in paragraph (2)) are de-
termined, under regulations prescribed by the
Secretary, to be made in exchange for the in-
terest of such partner in partnership property,
be considered as a distribution by the partner-
ship and not as a distributive share or guaran-
teed payment under subsection (a).
(2) Special rules
For purposes of this subsection, payments in
exchange for an interest in partnership prop-
erty shall not include amounts paid for—
(A) unrealized receivables of the partner-
ship (as defined in section 751(c)), or
(B) good will of the partnership, except to
the extent that the partnership agreement
provides for a payment with respect to good
will.
(3) Limitation on application of paragraph (2)
Paragraph (2) shall apply only if—
(A) capital is not a material income-pro-
ducing factor for the partnership, and
(B) the retiring or deceased partner was a
general partner in the partnership.
(Aug. 16, 1954, ch. 736, 68A Stat. 248; Pub. L.
94–455, title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90
Stat. 1834; Pub. L. 95–600, title VII, § 701(u)(13)(B),
Nov. 6, 1978, 92 Stat. 2918; Pub. L. 103–66, title
XIII, § 13262(a), (b)(2)(B), Aug. 10, 1993
Source: Supplied 2024 U.S. Code historical extraction · 26 U.S.C. § 737
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