26 U.S. Code § 735 - Character of gain or loss on disposition of distributed property
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(a) Sale or exchange of certain distributed property
(1) Unrealized receivables
(2) Inventory items
(b) Holding period for distributed property
In determining the period for which a partner has held property received in a distribution from a partnership (other than for purposes of subsection (a)(2)), there shall be included the holding period of the partnership, as determined under section 1223, with respect to such property.
(c) Special rules
(1) Waiver of holding periods contained in section 1231
(2) Substituted basis property
(A) In general
If any property described in subsection (a) 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 nonrecognition transactions.
(B) Exception for stock in C corporation
Subparagraph (A) shall not apply to any stock in a C corporation received in an exchange described in section 351.
Source(Aug. 16, 1954, ch. 763, 68A Stat. 247; Pub. L. 94–455, title XIX, § 1901(b)(3)(D),Oct. 4, 1976, 90 Stat. 1792; Pub. L. 98–369, div. A, title I, § 74(b),July 18, 1984, 98 Stat. 593; Pub. L. 105–34, title X, § 1062(b)(3),Aug. 5, 1997, 111 Stat. 947.)
1984—Subsec. (c). Pub. L. 98–369added subsec. (c).
1976—Subsec. (a)(1), (2). Pub. L. 94–455substituted “as ordinary income or as ordinary loss, as the case may be” for “gain or loss from the sale or exchange of property other than a capital asset”.
Effective Date of 1997 Amendment
Amendment by Pub. 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.
Effective Date of 1984 Amendment
Pub. L. 98–369, div. A, title I, § 74(d)(2),July 18, 1984, 98 Stat. 594, provided that: “The amendment made by subsection (b) [amending this section] shall apply to property distributed after March 31, 1984, in taxable years ending after such date.”
Effective Date of 1976 Amendment