Cases: Wolcott v. Commissioner, 39 T.C. 538 (1962); Holman v. Commissioner, 66 T.C. 809 (1976)
Final rules 3
(a) Sale or exchange of interest in partnership The amount of any money, or the fair market value of any property, received by a transferor partner in exchange for all or a part of his interest in the partnership attributable to—
Cited by 33
(1) unrealized receivables of the partnership, or
(2) inventory items of the partnership,
Amended 1997
- 1997 Pub. L. 105-34 Pub. L. 105–34, § 1062(a), amended par. (2) generally. Prior to amendment, par. (2) read as follows: “inventory items of the partnership which have appreciated substantially in value,”.
shall be considered as an amount realized from the sale or exchange of property other than a capital asset.
(b) Certain distributions treated as sales or exchanges
Cited by 29
(1) General rule To the extent a partner receives in a distribution—
Amended 1976, 1997
- 1997 Pub. L. 105-34 Pub. L. 105–34, § 1062(b)(1)(A), added subpars. (A) and (B) and struck out former subpars. (A) and (B) which read as follows:
- 1997 “(A) partnership property described in subsection (a)(1) or (2) in exchange for all or a part of his interest in other partnership property (including money), or
- 1997 “(B) partnership property (including money) other than property described in subsection (a)(1) or (2) in exchange for all or a part of his interest in partnership property described in subsection (a)(1) or (2),”.
- 1976 Pub. L. 94-455 Pub. L. 94–455, § 1906(b)(13)(A), struck out “or his delegate” after “Secretary”.
Cited by 3
(A) partnership property which is—
(i) unrealized receivables, or
Cited by 1
(ii) inventory items which have appreciated substantially in value,
Cited by 1
in exchange for all or a part of his interest in other partnership property (including money), or
(B) partnership property (including money) other than property described in subparagraph (A)(i) or (ii) in exchange for all or a part of his interest in partnership property described in subparagraph (A)(i) or (ii),
such transactions shall, under regulations prescribed by the Secretary, be considered as a sale or exchange of such property between the distributee and the partnership (as constituted after the distribution).
(2) Exceptions Paragraph (1) shall not apply to—
(A) a distribution of property which the distributee contributed to the partnership, or
Cited by 1
(B) payments, described in section 736(a), to a retiring partner or successor in interest of a deceased partner.
(3) Substantial appreciation For purposes of paragraph (1)—
Amended 1997
- 1997 Pub. L. 105-34 Pub. L. 105–34, § 1062(b)(1)(B), added par. (3).
Cited by 1
(A) In general Inventory items of the partnership shall be considered to have appreciated substantially in value if their fair market value exceeds 120 percent of the adjusted basis to the partnership of such property.
Cited by 1
(B) Certain property excluded For purposes of subparagraph (A), there shall be excluded any inventory property if a principal purpose for acquiring such property was to avoid the provisions of this subsection relating to inventory items.
(c) Unrealized receivables For purposes of this subchapter, the term “unrealized receivables” includes, to the extent not previously includible in income under the method of accounting used by the partnership, any rights (contractual or otherwise) to payment for—
Amended 1962, 1964, 1966, 1969, 1976, 1978, 1983, 1984, 1986, 1993, 1998, 2018
- 2018 Pub. L. 115-141 Pub. L. 115–141 substituted “and sections” for “and, sections” in two places in concluding provisions.
- 1998 Pub. L. 105-206 Pub. L. 105–206 substituted “731, 732,” for “731” wherever appearing in concluding provisions.
- 1993 Pub. L. 103-66 Pub. L. 103–66, § 13262(b)(1), in concluding provisions, substituted “section 731 or 741” for “section 731, 736, or 741” in two places and “, sections 731 and 741 (but not for purposes of section 736)” for “sections 731, 736, and 741” in two places.
- 1986 Pub. L. 99-514 Pub. L. 99–514, § 1899A(19), substituted “section 617(f)(2)), stock” for “section 617(f)(2), stock” in second sentence.
- 1986 Pub. L. 99-514 Pub. L. 99–514, § 201(d)(10), struck out “section 1245 recovery property (as defined in section 1245(a)(5)),” before “stock in certain foreign corporations” in second sentence.
- 1984 Pub. L. 98-369 Pub. L. 98–369, § 492(b)(4), struck out “farm recapture property (as defined in section 1251(e)(1)),” before “farm land”, and “1251(c),” after “1250(a),” in second sentence.
- 1984 Pub. L. 98-369 Pub. L. 98–369, § 43(c)(3), inserted last sentence.
- 1983 Pub. L. 97-448 Pub. L. 97–448 inserted reference to section 1245 recovery property (as defined in section 1245(a)(5)) in second sentence.
- 1978 Pub. L. 95-618 Pub. L. 95–618 substituted “oil, gas, or geothermal property” for “oil or gas property” in second sentence.
- 1976 Pub. L. 94-455 Pub. L. 94–455, §§ 205(b), 1042(c)(2), 1101(d)(2), 1901(a)(93), 2110(a), in second sentence, inserted reference to stock in a DISC (as described in section 992(a)), reference to stock in certain foreign corporations (as described in section 1248), and reference to farm land (as defined in section 1252(a)), franchises, trademarks or trade names (referred to in section 1253(a)), and an oil or gas property (described in section 1254), substituted “1252(a), 1253(a), or 1254(a)” for “or 1252(a)”, and inserted “1248(a),” after “1245(a),” and “995(c),” after “617(d)(1),”.
- 1969 Pub. L. 91-172 Pub. L. 91–172, in second sentence, substituted “section 1250 property (as defined in section 1250(c)), farm recapture property (as defined in section 1251(e)(1)), and farm land (as defined in section 1252(a))”, and “1250(a), 1251(c), or 1252(a)”, for “and section 1250 property (as defined in section 1250(c))” and “1250(a)”, respectively.
- 1966 Pub. L. 89-570 Pub. L. 89–570, in second sentence, inserted reference to mining property (as defined in section 617(f)(2)) and to section 617(d)(1).
- 1964 Pub. L. 88-272 Pub. L. 88–272, in second sentence, inserted reference to section 1250.
- 1962 Pub. L. 87-834 Pub. L. 87–834, § 13(f)(1), defined “unrealized receivables” for purposes of this section and section 731, 736, and 741, as including section 1245 property, but only to the extent of the amount which would be treated as gain to which section 1245(a) would apply if (at the time of the transaction described in this section or section 731, 736, or 741, as the case may be) such property had been sold by the partnership at its fair market value.
Cases: Ware v. Commissioner, 906 F.2d 62 (2d Cir. 1990)
Cited by 22
(1) goods delivered, or to be delivered, to the extent the proceeds therefrom would be treated as amounts received from the sale or exchange of property other than a capital asset, or
(2) services rendered, or to be rendered.
For purposes of this section and sections 731, 732, and 741 (but not for purposes of section 736), such term also includes mining property (as defined in section 617(f)(2)), stock in a DISC (as described in section 992(a)), section 1245 property (as defined in section 1245(a)(3)), stock in certain foreign corporations (as described in section 1248), section 1250 property (as defined in section 1250(c)), farm land (as defined in section 1252(a)), franchises, trademarks, or trade names (referred to in section 1253(a)), and an oil, gas, or geothermal property (described in section 1254) but only to the extent of the amount which would be treated as gain to which section 617(d)(1), 995(c), 1245(a), 1248(a), 1250(a), 1252(a), 1253(a), or 1254(a) would apply if (at the time of the transaction described in this section or section 731, 732, or 741, as the case may be) such property had been sold by the partnership at its fair market value. For purposes of this section and sections 731, 732, and 741 (but not for purposes of section 736), such term also includes any market discount bond (as defined in section 1278) and any short-term obligation (as defined in section 1283) but only to the extent of the amount which would be treated as ordinary income if (at the time of the transaction described in this section or section 731, 732, or 741, as the case may be) such property had been sold by the partnership.
(d) Inventory items For purposes of this subchapter, the term “inventory items” means—
Amended 1997, 2004
- 2004 Pub. L. 108-357 Pub. L. 108–357 inserted “and” at end of par. (2), redesignated par. (4) as (3) and substituted “paragraph (1) or (2)” for “paragraph (1), (2), or (3)”, and struck out former par. (3) which read as follows: “any other property of the partnership which, if sold or exchanged by the partnership, would result in a gain taxable under subsection (a) of section 1246 (relating to gain on foreign investment company stock), and”.
- 1997 Pub. L. 105-34 Pub. L. 105–34, § 1062(b)(2), amended heading and text of subsec. (d) generally. Prior to amendment, subsec. (d) consisted of pars. (1) and (2) relating to inventory items which have appreciated substantially in value.
Cited by 10
(1) property of the partnership of the kind described in section 1221(a)(1),
Amended 1993, 1999
- 1999 Pub. L. 106-170 Pub. L. 106–170 substituted “section 1221(a)(1)” for “section 1221(1)”.
- 1993 Pub. L. 103-66 Pub. L. 103–66, § 13206(e)(1), amended heading and text of par. (1) generally. Prior to amendment, text read as follows: “Inventory items of the partnership shall be considered to have appreciated substantially in value if their fair market value exceeds—
“(A) 120 percent of the adjusted basis to the partnership of such property, and
“(B) 10 percent of the fair market value of all partnership property, other than money.”
Cited by 2
(2) any other property of the partnership which, on sale or exchange by the partnership, would be considered property other than a capital asset and other than property described in section 1231, and
Amended 1962, 2004
- 2004 Pub. L. 108-357 Pub. L. 108–357 inserted “and” at end of par. (2), redesignated par. (4) as (3) and substituted “paragraph (1) or (2)” for “paragraph (1), (2), or (3)”, and struck out former par. (3) which read as follows: “any other property of the partnership which, if sold or exchanged by the partnership, would result in a gain taxable under subsection (a) of section 1246 (relating to gain on foreign investment company stock), and”.
- 1962 Pub. L. 87-834 Pub. L. 87–834, § 14(b)(2), added subpar. (C), redesignated former subpar. (C) as (D), and substituted “subparagraph (A), (B), or (C)” for “subparagraph (A) or (B)”.
Cited by 5
(3) any other property held by the partnership which, if held by the selling or distributee partner, would be considered property of the type described in paragraph (1) or (2).
Amended 2004
- 2004 Pub. L. 108-357 Pub. L. 108–357 inserted “and” at end of par. (2), redesignated par. (4) as (3) and substituted “paragraph (1) or (2)” for “paragraph (1), (2), or (3)”, and struck out former par. (3) which read as follows: “any other property of the partnership which, if sold or exchanged by the partnership, would result in a gain taxable under subsection (a) of section 1246 (relating to gain on foreign investment company stock), and”.
(e) Limitation on tax attributable to deemed sales of section 1248 stock For purposes of applying this section and sections 731 and 741 to any amount resulting from the reference to section 1248(a) in the second sentence of subsection (c), in the case of an individual, the tax attributable to such amount shall be limited in the manner provided by subsection (b) of section 1248 (relating to gain from certain sales or exchanges of stock in certain foreign corporation).
Amended 1978, 1993
- 1993 Pub. L. 103-66 Pub. L. 103–66, § 13262(b)(2)(A), substituted “sections 731 and 741” for “sections 731, 736, and 741”.
- 1978 Pub. L. 95-600 Pub. L. 95–600 added subsec. (e).
(f) Special rules in the case of tiered partnerships, etc. In determining whether property of a partnership is—
Amended 1984
- 1984 Pub. L. 98-369 Pub. L. 98–369, § 76(a), added subsec. (f).
(1) an unrealized receivable, or
(2) an inventory item,
such partnership shall be treated as owning its proportionate share of the property of any other partnership in which it is a partner. Under regulations, rules similar to the rules of the preceding sentence shall also apply in the case of interests in trusts.