§724 — Title 26 Internal Revenue Code | U.S. Code

Summary

When a partner puts certain kinds of property into a partnership, the partnership must treat any later gain or loss the same way the partner would have. This covers three kinds of contributions: property that was an unrealized receivable, property that was inventory for the partner, and property that was a capital asset for the partner. Unrealized receivable: see section 751(c). Inventory item: see section 751(d) (apply section 1231 without any holding-period rule). If that contributed property is later moved in a tax-free exchange, the same tax rules follow the new property that replaces it. That carryover rule does not apply if the exchange gives C corporation stock under section 351.

Title 26, §724

Internal Revenue Code — Source: USLM XML via OLRC

(a)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,

(b)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,

(c)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,

(d)For purposes of this section—

(1)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)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)(A)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)Subparagraph (A) shall not apply to any stock in a C corporation received in an exchange described in section 351.

Notes & Related Subsidiaries

Editorial Notes

Amendments

1997—Subsec. (d)(2). Pub. L. 105–34 substituted “section 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 section [amending this section and section 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.”

§724 Character of Gain or Loss on Contributed Unrealized Receivables, Inventory Items, and Capital Loss Property

Summary

Title 26, §724

Notes & Related Subsidiaries

Editorial Notes

Amendments

Statutory Notes and Related Subsidiaries

Effective Date

Amendments

Amendments

Effective Date

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