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

Summary

When you contribute property to a partnership, the tax character that property had in your hands follows it into the partnership. The rules cover three kinds of contributed property: items that were unrealized receivables in your hands, items that were inventory in your hands, and items that were capital assets in your hands, using the definitions in the partnership rules. If the partnership later disposes of such property in a tax-free exchange, the same treatment carries over to the replacement property, and through a series of such exchanges. The carryover does not apply to stock in a C corporation received in a tax-free incorporation.

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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