26 USC 732 - Basis of distributed property other than money

U.S Code last checked for updates: May 16, 2024

§ 732.

Basis of distributed property other than money

(a)

Distributions other than in liquidation of a partner’s interest

(1)

General rule

(2)

Limitation

(b)

Distributions in liquidation

(c)

Allocation of basis

(1)

In general

The basis of distributed properties to which subsection (a)(2) or (b) is applicable shall be allocated—

(A)

(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

(ii)

if the basis to be allocated is less than the sum of the adjusted bases of such properties to the partnership, then, to the extent any decrease is required in order to have the adjusted bases of such properties equal the basis to be allocated, in the manner provided in paragraph (3), 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

(ii)

then, to the extent any increase or decrease in basis is required in order to have the adjusted bases of such other distributed properties equal such remaining basis, in the manner provided in paragraph (2) or (3), whichever is appropriate.

(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

(B)

then, to the extent such increase is not allocated under subparagraph (A), in proportion to their respective fair market values.

(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

(B)

then, to the extent such decrease is not allocated under subparagraph (A), in proportion to their respective adjusted bases (as adjusted under subparagraph (A)).

(d)

Special partnership basis to transferee

(e)

Exception

(f)

Corresponding adjustment to basis of assets of a distributed corporation controlled by a corporate partner

(1)

In general

If—

(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

(B)

the corporate partner establishes to the satisfaction of the Secretary that such distribution was not part of a plan or arrangement to acquire control of the distributed corporation.

(3)

Limitations on basis reduction

(A)

In general

(B)

Reduction not to exceed adjusted basis of property

(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—

(A)

such excess shall be recognized by the corporate partner as long-term capital gain, and

(B)

the corporate partner’s adjusted basis in the stock of the distributed corporation shall be increased by such excess.

(5)

Control

(6)

Indirect distributions

(7)

Special rule for stock in controlled corporation

(8)

Regulations

(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),

cite as: 26 USC 732