§724 Character of gain or loss on contributed unrealized receivables, inventory items, and capital loss property

Summary

When a partner gives property to a partnership and that property was, right before the gift, either an unrealized receivable, an inventory item, or a capital asset, special tax rules apply to how gain or loss from that property is treated later. The law points to the meanings in other rules: "unrealized receivable" is defined in section 751(c), and "inventory item" is defined in section 751(d) (with section 751(d) read as if it talked about the partner and with section 1231 used without any holding-period rules). If property described above is later exchanged in a nonrecognition transaction (a swap or transfer that does not trigger tax right then), the same tax treatment follows the new property. That carryover rule also covers a series of such tax-free exchanges. The rule does not apply to stock in a C corporation received in an exchange under section 351.