26 U.S.C. § 731
In the case of a distribution by a partnership to a partner-
Any gain or loss recognized under this subsection shall be considered as gain or loss from the sale or exchange of the partnership interest of the distributee partner.
No gain or loss shall be recognized to a partnership on a distribution to a partner of property, including money.
For purposes of subsection (a)(1) and section 737-
For purposes of this subsection:
The term "marketable securities" means financial instruments and foreign currencies which are, as of the date of the distribution, actively traded (within the meaning of section 1092(d)(1)).
Such term includes-
The term "financial instrument" includes stocks and other equity interests, evidences of indebtedness, options, forward or futures contracts, notional principal contracts, and derivatives.
Paragraph (1) shall not apply to the distribution from a partnership of a marketable security to a partner if-
In the case of a distribution of marketable securities to a partner, the amount taken into account under paragraph (1) shall be reduced (but not below zero) by the excess (if any) of-
Under regulations prescribed by the Secretary, all marketable securities held by the partnership may be treated as marketable securities of the same class and issuer as the distributed securities.
For purposes of subparagraph (A)(iii):
The term "investment partnership" means any partnership which has never been engaged in a trade or business and substantially all of the assets (by value) of which have always consisted of-
A partnership shall not be treated as engaged in a trade or business by reason of-
The term "eligible partner" means any partner who, before the date of the distribution, did not contribute to the partnership any property other than assets described in clause (i).
The term "eligible partner" shall not include the transferor or transferee in a nonrecognition transaction involving a transfer of any portion of an interest in a partnership with respect to which the transferor was not an eligible partner.
Except as otherwise provided in regulations prescribed by the Secretary-
If the preceding sentence does not apply under such regulations with respect to any interest held by a partnership in another partnership, the interest in such other partnership shall be treated as if it were specified in a subclause of clause (i).
The basis of marketable securities with respect to which gain is recognized by reason of this subsection shall be-
Any increase in basis attributable to the gain described in subparagraph (A)(ii) shall be allocated to marketable securities in proportion to their respective amounts of unrealized appreciation before such increase.
Sections 733 and 734 shall be applied as if no gain were recognized, and no adjustment were made to the basis of property, under this subsection.
In the case of a distribution of a marketable security which is an unrealized receivable (as defined in section 751(c)) or an inventory item (as defined in section 751(d)), any gain recognized under this subsection shall be treated as ordinary income to the extent of any increase in the basis of such security attributable to the gain described in paragraph (4)(A)(ii).
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this subsection, including regulations to prevent the avoidance of such purposes.
This section shall not apply to the extent otherwise provided by section 736 (relating to payments to a retiring partner or a deceased partner's successor in interest), section 751 (relating to unrealized receivables and inventory items), and section 737 (relating to recognition of precontribution gain in case of certain distributions).
26 U.S.C. § 731
EDITORIAL NOTES
REFERENCES IN TEXTSection 2(a)(32) of the Investment Company Act of 1940, referred to in subsec. (c)(2)(B)(i)(II), is classified to section 80a-2(a)(32) of Title 15, Commerce and Trade.
AMENDMENTS1997-Subsecs. (a)(2)(B), (c)(6). Pub. L. 105-34 substituted "section 751(d)" for "section 751(d)(2)". 1994-Subsecs. (c), (d). Pub. L. 103-465 added subsec. (c) and redesignated former subsec. (c) as (d). 1992-Subsec. (c). Pub. L. 102-486 substituted ", section 751" for "and section 751" and inserted before period at end ", and section 737 (relating to recognition of precontribution gain in case of certain distributions)".
STATUTORY NOTES AND RELATED SUBSIDIARIES
EFFECTIVE DATE OF 1997 AMENDMENT Amendment by Pub. L. 105-34 applicable 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) of Pub. L. 105-34, set out as a note under section 724 of this title.
EFFECTIVE DATE OF 1994 AMENDMENT Pub. L. 103-465, §741(c), Dec. 8, 1994, 108 Stat. 5009, provided that:"(1) IN GENERAL.-Except as otherwise provided in this subsection, the amendments made by this section [amending this section and section 737 of this title] shall apply to distributions after the date of the enactment of this Act [Dec. 8, 1994]."(2) CERTAIN DISTRIBUTIONS BEFORE JANUARY 1, 1995.-The amendments made by this section shall not apply to any marketable security distributed before January 1, 1995, by the partnership which held such security on July 27, 1994."(3) DISTRIBUTIONS IN LIQUIDATION OF PARTNER'S INTEREST.-The amendments made by this section shall not apply to the distribution of a marketable security in liquidation of a partner's interest in a partnership if-"(A) such liquidation is pursuant to a written contract which was binding on July 15, 1994, and at all times thereafter before the distribution, and"(B) such contract provides for the purchase of such interest not later than a date certain for-"(i) a fixed value of marketable securities that are specified in the contract, or"(ii) other property. The preceding sentence shall not apply if the partner has the right to elect that such distribution be made other than in marketable securities."(4) DISTRIBUTIONS IN COMPLETE LIQUIDATION OF PUBLICLY TRADED PARTNERSHIPS.-"(A) IN GENERAL.-The amendments made by this section shall not apply to the distribution of a marketable security in a qualified partnership liquidation if- "(i) the marketable securities were received by the partnership in a nonrecognition transaction in exchange for substantially all of the assets of the partnership,"(ii) the marketable securities are distributed by the partnership within 90 days after their receipt by the partnership, and"(iii) the partnership is liquidated before the beginning of the 1st taxable year of the partnership beginning after December 31, 1997."(B) QUALIFIED PARTNERSHIP LIQUIDATION.-For purposes of subparagraph (A), the term 'qualified partnership liquidation' means-"(i) a complete liquidation of a publicly traded partnership (as defined in section 7704(b) of the Internal Revenue Code of 1986) which is an existing partnership (as defined in section 10211(c)(2) of the Revenue Act of 1987 [Pub. L. 100-203, set out as an Effective Date note under section 7704 of this title]), and"(ii) a complete liquidation of a partnership which is related to a partnership described in clause (i) if such liquidation is related to a complete liquidation of the partnership described in clause (i)."(5) MARKETABLE SECURITIES.-For purposes of this subsection, the term 'marketable securities' has the meaning given such term by section 731(c) of the Internal Revenue Code of 1986, as added by this section."
EFFECTIVE DATE OF 1992 AMENDMENT Amendment by Pub. L. 102-486 applicable to distributions on or after June 25, 1992, see section 1937(c) of Pub. L. 102-486, set out as a note under section 704 of this title.
- Internal Revenue Code of 1986
- The term "Internal Revenue Code of 1986" means this title, and the term "Internal Revenue Code of 1939" means the Internal Revenue Code enacted February 10, 1939, as amended.
- Secretary
- The term "Secretary" means the Secretary of the Treasury or his delegate.
- corporation
- The term "corporation" includes associations, joint-stock companies, and insurance companies.
- nonrecognition transaction
- The term "nonrecognition transaction" means any disposition of property in a transaction in which gain or loss is not recognized in whole or in part for purposes of subtitle A.
- stock
- The term "stock" includes shares in an association, joint-stock company, or insurance company.
- taxable year
- The term "taxable year" means the calendar year, or the fiscal year ending during such calendar year, upon the basis of which the taxable income is computed under subtitle A. "Taxable year" means, in the case of a return made for a fractional part of a year under the provisions of subtitle A or under regulations prescribed by the Secretary, the period for which such return is made.
- trade or business
- The term "trade or business" includes the performance of the functions of a public office.
- transaction
- The term "transaction" includes a series of transactions.