I.R.C. § 737(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—
I.R.C. § 737(a)(1)
the excess (if any) of (A) the fair market value of property (other than money)
received in the distribution over (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
the net precontribution gain.
I.R.C. § 737(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—
I.R.C. § 737(b)(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.
I.R.C. § 737(c) Basis Rules
I.R.C. § 737(c)(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.
I.R.C. § 737(c)(2) Partnership's Basis In Contributed Property
Appropriate adjustments shall be made to the adjusted basis of the partnership in
the contributed property referred to in subsection (b) to reflect gain recognized
under subsection (a).
I.R.C. § 737(d) Exceptions
I.R.C. § 737(d)(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.
I.R.C. § 737(d)(2) Coordination With Section 751
This section shall not apply to the extent section 751(b)
applies to such distribution.
I.R.C. § 737(e) Marketable Securities Treated As Money
For treatment of marketable securities as money for purposes of this section, see
(Added Oct. 24, 1992, Pub. L. 102-486, Sec. 1937(a); Dec. 8, 1994, Pub. L. 103-465, title VII, Sec. 741(b)(1),
(2); Pub. L. 105-34, title X, Sec. 1063(a), Aug. 5, 1997, 111 Stat 788.)
1997 - Subsec. (b)(1). Pub. L. 105-34, Sec. 1063(a), substituted
“7 years” for “5 years”.
1994 - Subsec. (e). Pub. L. 103-465, Sec. 741(b)(2), added (e).
Subsec. (c)(1). Pub. L. 103-465, Sec. 741(b)(1), amended the last sentence to read as above. Prior to amendment, the 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.”
EFFECTIVE DATE OF 1997 AMENDMENTS
Section 1063(b) of Pub. L. 105-34 provided that:
“(1) In general.--The amendment made by subsection
(a) shall apply to property contributed to a partnership after June 8, 1997.
“(2) Binding contracts.--The amendment made by subsection (a) shall not apply
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.”
EFFECTIVE DATE OF 1994 AMENDMENTS
(1) IN GENERAL.--Except as otherwise provided in this subsection, the amendments made
by this section shall apply to distributions after the date of the enactment of this
(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
(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"
(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), and
(ii) a complete liquidation of a partnership which is related to a partnership described
(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 for distributions on or after June 25, 1992.