26 U.S.C. § 724
§ 724. Character of gain or loss on contributed unrealized receivables, inventory items, and capital loss property
No plain-English explainer yet. Below is the official text. Explainers are being added section by section.
The law as written
Current through Public Law 119-102. Amendment notes omitted.
Structure
In the case of any property which—
was contributed to the partnership by a partner, and
was an unrealized receivable in the hands of such partner immediately before such contribution,
any gain or loss recognized by the partnership on the disposition of such property shall be treated as ordinary income or ordinary loss, as the case may be.
In the case of any property which—
was contributed to the partnership by a partner, and
was an inventory item in the hands of such partner immediately before such contribution,
any gain or loss recognized by the partnership on the disposition of such property during the 5-year period beginning on the date of such contribution shall be treated as ordinary income or ordinary loss, as the case may be.
In the case of any property which—
was contributed by a partner to the partnership, and
was a capital asset in the hands of such partner immediately before such contribution,
any loss recognized by the partnership on the disposition of such property during the 5-year period beginning on the date of such contribution shall be treated as a loss from the sale of a capital asset to the extent that, immediately before such contribution, the adjusted basis of such property in the hands of the partner exceeded the fair market value of such property.
For purposes of this section—
The term “unrealized receivable” has the meaning given such term by section 751(c) (determined by treating any reference to the partnership as referring to the partner).
If any property described in subsection (a), (b), or (c) is disposed of in a nonrecognition transaction, the tax treatment which applies to such property under such subsection shall also apply to any substituted basis property resulting from such transaction. A similar rule shall also apply in the case of a series of non-recognition transactions.
Subparagraph (A) shall not apply to any stock in a C corporation received in an exchange described in section 351.