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26 U.S.C. § 724 — Character of gain or loss on contributed unrealized receivables, inventory items, and capital loss property
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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Source file: Laws/federal/codes/united-states-code/title-26/section-724-character-of-gain-or-loss-on-contributed-unrealized-receivables-inventor--3e5975c22c.md
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Source location: Title 26, Chapter 1, § 724; chapter-001-normal-taxes-and-surtaxes.md
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**(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 section 751(d) (determined by treating any reference to the partnership as referring to the partner and by applying section 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-recognition 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) 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) Distributions other than in liquidation of a partner’s interest**
(1) **General rule** — The basis of property (other than money) distributed by a partnership to a partner other than in liquidation of the partner’s interest shall, except as provided in paragraph (2), be its adjusted basis to the partnership immediately before such distribution.
(2) **Limitation** — The basis to the distributee partner of property to which paragraph (1) is applicable shall not exceed the adjusted basis of such partner’s interest in the partnership reduced by any money distributed in the same transaction.
**(b) Distributions in liquidation** The basis of property (other than money) distributed by a partnership to a partner in liquidation of the partner’s interest shall be an amount equal to the adjusted basis of such partner’s interest in the partnership reduced by any money distributed in the same transaction.
**(c) Allocation of basis**
(1) **In general** — The basis of distributed properties to which subsection (a)(2) or (b) is applicable shall be allocated—
(A)
(i) first to any unrealized receivables (as defined in section 751(c)) and inventory items (as defined in section 751(d)) in an amount equal to the adjusted basis of each such property to the partnership, and
(ii) if the basis to be allocated is less than the sum of the adjusted bases of such properties to the partnership, then, to the extent any decrease is required in order to have the adjusted bases of such properties equal the basis to be allocated, in the manner provided in paragraph (3), and
(B) to the extent of any basis remaining after the allocation under subparagraph (A), to other distributed properties—
(i) first by assigning to each such other property such other property’s adjusted b
Source: Supplied U.S. Code snapshot — release unconfirmed · 26 U.S.C. § 732
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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.
Source: Supplied U.S. Code snapshot — release unconfirmed · 26 U.S.C. § 735
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Federal law — U.S. Code and appendices · legal_authorities
**(a) Sale or exchange of interest in partnership** The amount of any money, or the fair market value of any property, received by a transferor partner in exchange for all or a part of his interest in the partnership attributable to—
(1) unrealized receivables of the partnership, or
(2) inventory items of the partnership,
shall be considered as an amount realized from the sale or exchange of property other than a capital asset.
**(b) Certain distributions treated as sales or exchanges**
(1) **General rule** — To the extent a partner receives in a distribution—
(A) partnership property which is—
(i) unrealized receivables, or
(ii) inventory items which have appreciated substantially in value,
in exchange for all or a part of his interest in other partnership property (including money), or
(B) partnership property (including money) other than property described in subparagraph (A)(i) or (ii) in exchange for all or a part of his interest in partnership property described in subparagraph (A)(i) or (ii),
such transactions shall, under regulations prescribed by the Secretary, be considered as a sale or exchange of such property between the distributee and the partnership (as constituted after the distribution).
(2) **Exceptions** — Paragraph (1) shall not apply to—
(A) a distribution of property which the distributee contributed to the partnership, or
(B) payments, described in section 736(a), to a retiring partner or successor in interest of a deceased partner.
(3) **Substantial appreciation** — For purposes of paragraph (1)—
(A) *In general* — Inventory items of the partnership shall be considered to have appreciated substantially in value if their fair market value exceeds 120 percent of the adjusted basis to the partnership of such pro
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Federal law — U.S. Code and appendices · legal_authorities
Page 1875
TITLE 26—INTERNAL REVENUE CODE
§ 724
AMENDMENTS
1997—Subsec. (c). Pub. L. 105–34, § 1131(b)(3), added
subsec. (c).
Subsec. (d). Pub. L. 105–34, § 1131(b)(5)(B), added sub-
sec. (d).
1976—Pub. L. 94–455 designated existing provisions as
subsec. (a), added subsec. (a) heading ‘‘General rule’’,
and added subsec. (b).
Statutory Notes and Related Subsidiaries
EFFECTIVE DATE OF 1976 AMENDMENT
Pub. L. 94–455, title XXI, § 2131(f)(3)–(5), Oct. 4, 1976, 90
Stat. 1924, 1925, provided that:
‘‘(3) Except as provided in paragraph (4), the amend-
ments made by subsections (b) and (c) [amending this
section and sections 722 and 723 of this title] shall apply
to transfers made after February 17, 1976, in taxable
years ending after such date.
‘‘(4) The amendments made by subsections (b) and (c)
shall not apply to transfers to a partnership made on or
before the 90th day after the date of the enactment of
this Act [Oct. 4, 1976] if—
‘‘(A) either—
‘‘(i) a ruling request with respect to such trans-
fers was filed with the Internal Revenue Service be-
fore March 27, 1976, or
‘‘(ii) a registration statement with respect to
such transfers was filed with the Securities and Ex-
change Commission before March 27, 1976,
‘‘(B) the securities transferred were deposited on or
before the 60th day after the date of the enactment of
this Act [Oct. 4, 1976], and
‘‘(C) either—
‘‘(i) the aggregate value (determined as of the
close of the 60th day referred to in subparagraph
(B), or, if earlier, the close of the deposit period) of
the securities so transferred does not exceed
$100,000,000, or
‘‘(ii) the securities transferred were all on deposit
on February 29, 1976, pursuant to a registration
statement referred to in subparagraph (A)(ii).
‘‘(5) If no registration s
Source: Supplied 2024 U.S. Code historical extraction · 26 U.S.C. § 724
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