26 U.S.C. § 721 — Nonrecognition of gain or loss on contribu-

Page 1874 TITLE 26—INTERNAL REVENUE CODE § 721 with the month in which the partnership be- gins business. (2) Dispositions before close of amortization period In any case in which a partnership is liq- uidated before the end of the period to which paragraph (1)(B) applies, any deferred expenses attributable to the partnership which were not allowed as a deduction by reason of this sec- tion may be deducted to the extent allowable under section 165. (3) Organizational expenses defined The organizational expenses to which para- graph (1) applies, are expenditures which— (A) are incident to the creation of the partnership; (B) are chargeable to capital account; and (C) are of a character which, if expended incident to the creation of a partnership having an ascertainable life, would be amor- tized over such life. (Added Pub. L. 94–455, title II, § 213(b)(1), Oct. 4, 1976, 90 Stat. 1547; amended Pub. L. 108–357, title VIII, § 902(c), Oct. 22, 2004, 118 Stat. 1651; Pub. L. 109–135, title IV, § 403(ll), Dec. 21, 2005, 119 Stat. 2632.) Editorial Notes AMENDMENTS 2005—Subsec. (b)(1). Pub. L. 109–135 substituted ‘‘part- nership’’ for ‘‘taxpayer’’ in introductory provisions and before ‘‘shall be allowed’’ in subpar. (A). 2004—Subsec. (b). Pub. L. 108–357 substituted ‘‘Deduc- tion’’ for ‘‘Amortization’’ in heading, added par. (2), re- designated former par. (2) as (3), and amended heading and text of par. (1) generally. Prior to amendment, text of par. (1) read as follows: ‘‘Amounts paid or incurred to organize a partnership may, at the election of the partnership (made in accordance with regulations pre- scribed by the Secretary), be treated as deferred ex- penses. Such deferred expenses shall be allowed as a de- duction ratably over such period of not less than 60 months as may be selected by the partnership (begin- ning with the month in which the partnership begins business), or if the partnership is liquidated before the end of such 60-month period, such deferred expenses (to the extent not deducted under this section) may be de- ducted to the extent provided in section 165.’’ 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 Amendment by Pub. L. 108–357 applicable to amounts paid or incurred after Oct. 22, 2004, see section 902(d) of Pub. L. 108–357, set out as a note under section 195 of this title. EFFECTIVE DATE Pub. L. 94–455, title II, § 213(f), Oct. 4, 1976, 90 Stat. 1548, as amended by Pub. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, provided that: ‘‘(1) IN GENERAL.—Except as otherwise provided in this subsection, the amendments made by this section [enacting this section and amending sections 179, 704, 706, 707, and 761 of this title] shall apply in the case of partnership taxable years beginning after December 31, 1975. ‘‘(2) SUBSECTION (e).—The amendment made by sub- section (e) [amending section 704 of this title] shall apply to liabilities incurred after December 31, 1976. ‘‘(3) SECTION 709(b) OF THE CODE.—Section 709(b) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as added by the amendment made by subsection (b)(1) of this section) shall apply in the case of amounts paid or incurred in taxable years beginning after December 31, 1976.’’ PART II—CONTRIBUTIONS, DISTRIBUTIONS, AND TRANSFERS Subpart A. Contributions to a partnership. B. Distributions by a partnership. C. Transfers of interests in a partnership. D. Provisions common to other subparts. SUBPART A—CONTRIBUTIONS TO A PARTNERSHIP Sec. 721. Nonrecognition of gain or loss on contribu- tion. 722. Basis of contributing partner’s interest. 723. Basis of property contributed to partnership. 724. Character of gain or loss on contributed unre- alized receivables, inventory items, and capital loss property. Editorial Notes AMENDMENTS 1984—Pub. L. 98–369, div. A, title I, § 74(c), July 18, 1984, 98 Stat. 593, added item 724. § 721. Nonrecognition of gain or loss on contribu- tion (a) General rule No gain or loss shall be recognized to a part- nership or to any of its partners in the case of a contribution of property to the partnership in exchange for an interest in the partnership. (b) Special rule Subsection (a) shall not apply to gain realized on a transfer of property to a partnership which would be treated as an investment company (within the meaning of section 351) if the part- nership were incorporated. (c) Regulations relating to certain transfers to partnerships The Secretary may provide by regulations that subsection (a) shall not apply to gain real- ized on the transfer of property to a partnership if such gain, when recognized, will be includible in the gross income of a person other than a United States person. (d) Transfers of intangibles For regulatory authority to treat intangibles transferred to a partnership as sold, see section 367(d)(3). (Aug. 16, 1954, ch. 736, 68A Stat. 245; Pub. L. 94–455, title XXI, § 2131(b), Oct. 4, 1976, 90 Stat. 1924; Pub. L. 105–34, title XI, § 1131(b)(3), (5)(B), Aug. 5, 1997, 111 Stat. 979, 980.) Editorial Notes CODIFICATION Another section 1131(b) of Pub. L. 105–34 enacted sec- tion 684 of this title. 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 statement was required to be filed with the Securities and Exchange Commission with respect to the transfer of securities to any part- nership, then paragraph (4) shall be applied to such transfers— ‘‘(A) as if paragraph (4) did not contain subpara- graph (A)(ii) thereof, and ‘‘(B) by substituting ‘$25,000,000’ for ‘$100,000,000’ in subparagraph (C)(i) thereof.’’ § 722. Basis of contributing partner’s interest The basis of an interest in a partnership ac- quired by a contribution of property, including money, to the partnership shall be the amount of such money and the adjusted basis of such property to the contributing partner at the time of the contribution increased by the amount (if any) of gain recognized under section 721(b) to the contributing partner at such time. (Aug. 16, 1954, ch. 736, 68A Stat. 245; Pub. L. 94–455, title XXI, § 2131(c), Oct. 4, 1976, 90 Stat. 1924; Pub. L. 98–369, div. A, title VII, § 722(f)(1), July 18, 1984, 98 Stat. 974.) Editorial Notes AMENDMENTS 1984—Pub. L. 98–369 inserted ‘‘under section 721(b)’’ after ‘‘gain recognized’’. 1976—Pub. L. 94–455 inserted ‘‘increased by the amount (if any) of gain recognized to the contributing partner at such time’’ after ‘‘at the time of the con- tribution’’. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 1984 AMENDMENT Pub. L. 98–369, div. A, title VII, § 722(f)(2), July 18, 1984, 98 Stat. 974, provided that: ‘‘The amendments made by paragraph (1) [amending this section and sec- tion 723 of this title] shall take effect as if included in the amendments made by section 2131 of the Tax Re- form Act of 1976 [Pub. L. 94–455].’’ EFFECTIVE DATE OF 1976 AMENDMENT For effective date of amendment made by Pub. L. 94–455, see section 2131(f)(3)–(5) of Pub. L. 94–455, set out as a note under section 721 of this title. § 723. Basis of property contributed to partner- ship The basis of property contributed to a partner- ship by a partner shall be the adjusted basis of such property to the contributing partner at the time of the contribution increased by the amount (if any) of gain recognized under section 721(b) to the contributing partner at such time. (Aug. 16, 1954, ch. 736, 68A Stat. 245; Pub. L. 94–455, title XXI, § 2131(c), Oct. 4, 1976, 90 Stat. 1924; Pub. L. 98–369, div. A, title VII, § 722(f)(1), July 18, 1984, 98 Stat. 974.) Editorial Notes AMENDMENTS 1984—Pub. L. 98–369 inserted ‘‘under section 721(b)’’ after ‘‘gain recognized’’. 1976—Pub. L. 94–455 inserted ‘‘increased by the amount (if any) of gain recognized to the contributing partner at such time’’ after ‘‘at the time of the con- tribution’’. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98–369 effective as if included in amendments made by section 2131 of the Tax Reform Act of 1976, Pub. L. 94–455, see section 722(f)(2) of Pub. L. 98–369, set out as a note under section 722 of this title. EFFECTIVE DATE OF 1976 AMENDMENT For effective date of amendment made by Pub. L. 94–455, see section 2131(f)(3)–(5) of Pub. L. 94–455, set out as a note under section 721 of this title. § 724. Character of gain or loss on contributed unrealized receivables, inventory items, and capital loss property (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 con- tribution, 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 con- tribution,