26 U.S.C. § 724 — Character of gain or loss on contributed

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, 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-recognition transactions. (B) Exception for stock in C corporation Subparagraph (A) shall not apply to any stock in a C corporation received in an ex- change described in section 351. (Added Pub. L. 98–369, div. A, title I, § 74(a), July 18, 1984, 98 Stat. 592; amended Pub. L. 104–188, title I, § 1704(t)(63), Aug. 20, 1996, 110 Stat. 1890; Pub. L. 105–34, title X, § 1062(b)(3), Aug. 5, 1997, 111 Stat. 947.) Editorial Notes AMENDMENTS 1997—Subsec. (d)(2). Pub. L. 105–34 substituted ‘‘sec- tion 751(d)’’ for ‘‘section 751(d)(2)’’. 1996—Subsec. (d)(3)(B). Pub. L. 104–188 substituted ‘‘Subparagraph’’ for ‘‘Subparagaph’’. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 1997 AMENDMENT Pub. L. 105–34, title X, § 1062(c), Aug. 5, 1997, 111 Stat. 947, provided that: ‘‘(1) IN GENERAL.—The amendments made by this sec- tion [amending this section and sections 731, 732, 735, and 751 of this title] shall apply to sales, exchanges, and distributions after the date of the enactment of this Act [Aug. 5, 1997]. ‘‘(2) BINDING CONTRACTS.—The amendments made by this section shall not apply to any sale or exchange pursuant to a written binding contract in effect on June 8, 1997, and at all times thereafter before such sale or exchange.’’ EFFECTIVE DATE Pub. L. 98–369, div. A, title I, § 74(d)(1), July 18, 1984, 98 Stat. 594, provided that: ‘‘The amendment made by subsection (a) [enacting this section] shall apply to property contributed to a partnership after March 31, 1984, in taxable years ending after such date.’’ SUBPART B—DISTRIBUTIONS BY A PARTNERSHIP Sec. 731. Extent of recognition of gain or loss on dis- tribution. 732. Basis of distributed property other than money. 733. Basis of distributee partner’s interest. 734. Adjustment to basis of undistributed partner- ship property where section 754 election or substantial basis reduction. 735. Character of gain or loss on disposition of dis- tributed property. 736. Payments to a retiring partner or a deceased partner’s successor in interest. 737. Recognition of precontribution gain in case of certain distributions to contributing part- ner. Editorial Notes AMENDMENTS 2004—Pub. L. 108–357, title VIII, § 833(c)(5)(B), Oct. 22, 2004, 118 Stat. 1592, substituted ‘‘Adjustment to basis of undistributed partnership property where section 754 election or substantial basis reduction’’ for ‘‘Optional adjustment to basis of undistributed partnership prop- erty’’ in item 734. 1992—Pub. L. 102–486, title XIX, § 1937(b)(3), Oct. 24, 1992, 106 Stat. 3033, added item 737. § 731. Extent of recognition of gain or loss on dis- tribution (a) Partners In the case of a distribution by a partnership to a partner— (1) gain shall not be recognized to such part- ner, except to the extent that any money dis- tributed exceeds the adjusted basis of such partner’s interest in the partnership imme- diately before the distribution, and (2) loss shall not be recognized to such part- ner, except that upon a distribution in liquida- tion 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 deter- mined 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 sub- section shall be considered as gain or loss from