26 U.S. Code § 737 - Recognition of precontribution gain in case of certain distributions to contributing partner
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(a) General rule
In the case of any distribution by a partnership to a partner, such partner shall be treated as recognizing gain in an amount equal to the lesser of—
(1) the excess (if any) of
(B) the adjusted basis of such partner’s interest in the partnership immediately before the distribution reduced (but not below zero) by the amount of money received in the distribution, or
Gain recognized under the preceding sentence shall be in addition to any gain recognized under section 731. The character of such gain shall be determined by reference to the proportionate character of the net precontribution gain.
(b) Net precontribution gain
For purposes of this section, the term “net precontribution gain” means the net gain (if any) which would have been recognized by the distributee partner under section 704 (c)(1)(B) if all property which—
(1) had been contributed to the partnership by the distributee partner within 7 years of the distribution, and
had been distributed by such partnership to another partner.
(c) Basis rules
(1) Partner’s interest
The adjusted basis of a partner’s interest in a partnership shall be increased by the amount of any gain recognized by such partner under subsection (a). For purposes of determining the basis of the distributed property (other than money), such increase shall be treated as occurring immediately before the distribution.
(1) Distributions of previously contributed property
If any portion of the property distributed consists of property which had been contributed by the distributee partner to the partnership, such property shall not be taken into account under subsection (a)(1) and shall not be taken into account in determining the amount of the net precontribution gain. If the property distributed consists of an interest in an entity, the preceding sentence shall not apply to the extent that the value of such interest is attributable to property contributed to such entity after such interest had been contributed to the partnership.
Source(Added Pub. L. 102–486, title XIX, § 1937(a),Oct. 24, 1992, 106 Stat. 3032; amended Pub. L. 103–465, title VII, § 741(b),Dec. 8, 1994, 108 Stat. 5009; Pub. L. 104–188, title I, § 1704(j)(8),Aug. 20, 1996, 110 Stat. 1882; Pub. L. 105–34, title X, § 1063(a),Aug. 5, 1997, 111 Stat. 947.)
1997—Subsec. (b)(1). Pub. L. 105–34substituted “7 years” for “5 years”.
1996—Pub. L. 104–188provided that section 1937(a) ofPub. L. 102–486, shall be applied as if “Subpart B” appeared instead of “Subpart C”. Section 1937(a) ofPub. L. 102–486directed amendment of subpart C of this part by adding this section at the end thereof.
1994—Subsec. (c)(1). Pub. L. 103–465, § 741(b)(1), amended last sentence generally. Prior to amendment, last sentence read as follows: “Except for purposes of determining the amount recognized under subsection (a), such increase shall be treated as occurring immediately before the distribution.”
Subsec. (e). Pub. L. 103–465, § 741(b)(2), added subsec. (e).
Effective Date of 1997 Amendment
Amendment by Pub. L. 105–34applicable to property contributed to a partnership after June 8, 1997, but not applicable to any property contributed pursuant to a written binding contract in effect on June 8, 1997, and at all times thereafter before such contribution if such contract provides for the contribution of a fixed amount of property, see section 1063(b) ofPub. L. 105–34, set out as a note under section 704 of this title.
Effective Date of 1994 Amendment
Amendment by Pub. L. 103–465applicable to distributions after Dec. 8, 1994, and not applicable to certain distributions before Jan. 1, 1995, distributions in liquidation of partner’s interest, or distributions in complete liquidation of publicly traded partnerships, see section 741(c) ofPub. L. 103–465, set out as a note under section 731 of this title.