26 U.S. Code § 732 - Basis of distributed property other than money
(a) Distributions other than in liquidation of a partner’s interest
(1) General rule
The basis of property (other than money) distributed by a partnership to a partner other than in liquidation of the partner’s interest shall, except as provided in paragraph (2), be its adjusted basis to the partnership immediately before such distribution.
(b) Distributions in liquidation
The basis of property (other than money) distributed by a partnership to a partner in liquidation of the partner’s interest shall be an amount equal to the adjusted basis of such partner’s interest in the partnership reduced by any money distributed in the same transaction.
(c) Allocation of basis
(1) In general
The basis of distributed properties to which subsection (a)(2) or (b) is applicable shall be allocated—
(i) first to any unrealized receivables (as defined in section 751 (c)) and inventory items (as defined in section 751 (d)) in an amount equal to the adjusted basis of each such property to the partnership, and
(B) to the extent of any basis remaining after the allocation under subparagraph (A), to other distributed properties—
(i) first by assigning to each such other property such other property’s adjusted basis to the partnership, and
(2) Method of allocating increase
Any increase required under paragraph (1)(B) shall be allocated among the properties—
(A) first to properties with unrealized appreciation in proportion to their respective amounts of unrealized appreciation before such increase (but only to the extent of each property’s unrealized appreciation), and
(3) Method of allocating decrease
Any decrease required under paragraph (1)(A) or (1)(B) shall be allocated—
(A) first to properties with unrealized depreciation in proportion to their respective amounts of unrealized depreciation before such decrease (but only to the extent of each property’s unrealized depreciation), and
(d) Special partnership basis to transferee
For purposes of subsections (a), (b), and (c), a partner who acquired all or a part of his interest by a transfer with respect to which the election provided in section 754 is not in effect, and to whom a distribution of property (other than money) is made with respect to the transferred interest within 2 years after such transfer, may elect, under regulations prescribed by the Secretary, to treat as the adjusted partnership basis of such property the adjusted basis such property would have if the adjustment provided in section 743 (b) were in effect with respect to the partnership property. The Secretary may by regulations require the application of this subsection in the case of a distribution to a transferee partner, whether or not made within 2 years after the transfer, if at the time of the transfer the fair market value of the partnership property (other than money) exceeded 110 percent of its adjusted basis to the partnership.
(f) Corresponding adjustment to basis of assets of a distributed corporation controlled by a corporate partner
(1) In general
(A) a corporation (hereafter in this subsection referred to as the “corporate partner”) receives a distribution from a partnership of stock in another corporation (hereafter in this subsection referred to as the “distributed corporation”),
(B) the corporate partner has control of the distributed corporation immediately after the distribution or at any time thereafter, and
(C) the partnership’s adjusted basis in such stock immediately before the distribution exceeded the corporate partner’s adjusted basis in such stock immediately after the distribution,
then an amount equal to such excess shall be applied to reduce (in accordance with subsection (c)) the basis of property held by the distributed corporation at such time (or, if the corporate partner does not control the distributed corporation at such time, at the time the corporate partner first has such control).
(2) Exception for certain distributions before control acquired
Paragraph (1) shall not apply to any distribution of stock in the distributed corporation if—
(A) the corporate partner does not have control of such corporation immediately after such distribution, and
(3) Limitations on basis reduction
(A) In general
The amount of the reduction under paragraph (1) shall not exceed the amount by which the sum of the aggregate adjusted bases of the property and the amount of money of the distributed corporation exceeds the corporate partner’s adjusted basis in the stock of the distributed corporation.
(4) Gain recognition where reduction limited
If the amount of any reduction under paragraph (1) (determined after the application of paragraph (3)(A)) exceeds the aggregate adjusted bases of the property of the distributed corporation—
(6) Indirect distributions
For purposes of paragraph (1), if a corporation acquires (other than in a distribution from a partnership) stock the basis of which is determined (by reason of being distributed from a partnership) in whole or in part by reference to subsection (a)(2) or (b), the corporation shall be treated as receiving a distribution of such stock from a partnership.
(7) Special rule for stock in controlled corporation
If the property held by a distributed corporation is stock in a corporation which the distributed corporation controls, this subsection shall be applied to reduce the basis of the property of such controlled corporation. This subsection shall be reapplied to any property of any controlled corporation which is stock in a corporation which it controls.
Source(Aug. 16, 1954, ch. 736, 68A Stat. 246; Pub. L. 94–455, title XIX, § 1906(b)(13)(A),Oct. 4, 1976, 90 Stat. 1834; Pub. L. 105–34, title X, §§ 1061(a), 1062(b)(3),Aug. 5, 1997, 111 Stat. 945, 947; Pub. L. 106–170, title V, § 538(a),Dec. 17, 1999, 113 Stat. 1939.)
1999—Subsec. (f). Pub. L. 106–170added subsec. (f).
1997—Subsec. (c). Pub. L. 105–34, § 1061(a), amended heading and text of subsec. (c) generally. Prior to amendment, text read as follows: “The basis of distributed properties to which subsection (a)(2) orsubsection (b) is applicable shall be allocated—
“(1) first to any unrealized receivables (as defined in section 751 (c)) and inventory items (as defined in section 751 (d)(2)) in an amount equal to the adjusted basis of each such property to the partnership (or if the basis to be allocated is less than the sum of the adjusted bases of such properties to the partnership, in proportion to such bases), and
“(2) to the extent of any remaining basis, to any other distributed properties in proportion to their adjusted bases to the partnership.”
Subsec. (c)(1)(A)(i). Pub. L. 105–34, § 1062(b)(3), substituted “section 751 (d)” for “section 751 (d)(2)”.
1976—Subsec. (d). Pub. L. 94–455struck out “or his delegate” after “Secretary”.
Effective Date of 1999 Amendment
“(1) In general.—Except as provided in paragraph (2), the amendment made by this section [amending this section] shall apply to distributions made after July 14, 1999.
“(2) Partnerships in existence on July 14, 1999.—In the case of a corporation which is a partner in a partnership as of July 14, 1999, the amendment made by this section shall apply to any distribution made (or treated as made) to such partner from such partnership after June 30, 2001, except that this paragraph shall not apply to any distribution after the date of the enactment of this Act [Dec. 17, 1999] unless the partner makes an election to have this paragraph apply to such distribution on the partner’s return of Federal income tax for the taxable year in which such distribution occurs.”
Effective Date of 1997 Amendment
Pub. L. 105–34, title X, § 1061(b),Aug. 5, 1997, 111 Stat. 946, provided that: “The amendment made by subsection (a) [amending this section] shall apply to distributions after the date of the enactment of this Act [Aug. 5, 1997].”
Amendment by section 1062(b)(3) ofPub. L. 105–34applicable to sales, exchanges, and distributions after Aug. 5, 1997, but not applicable 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, see section 1062(c) ofPub. L. 105–34, set out as a note under section 724 of this title.