26 U.S.C. § 721

Nonrecognition of gain or loss on contribution

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(a) General rule

No gain or loss shall be recognized to a partnership or to any of its partners in the case of a contribution of property to the partnership in exchange for an interest in the partnership.

(b) Special rule

Subsection (a) shall not apply to gain realized on a transfer of property to a partnership which would be treated as an investment company (within the meaning of section 351) if the partnership were incorporated.

The Secretary may provide by regulations that subsection (a) shall not apply to gain realized on the transfer of property to a partnership if such gain, when recognized, will be includible in the gross income of a person other than a United States person.

(d) Transfers of intangibles

For regulatory authority to treat intangibles transferred to a partnership as sold, see section 367(d)(3).

(Aug. 16, 1954, ch. 736, 68A Stat. 245; Pub. L. 94–455, title XXI, § 2131(b), Oct. 4, 1976, 90 Stat. 1924; Pub. L. 105–34, title XI, § 1131(b)(3), (5)(B), Aug. 5, 1997, 111 Stat. 979, 980.)Editorial NotesCodification

Another section 1131(b) of Pub. L. 105–34 enacted section 684 of this title.

Amendments

1997—Subsec. (c). Pub. L. 105–34, § 1131(b)(3), added subsec. (c).

Subsec. (d). Pub. L. 105–34, § 1131(b)(5)(B), added subsec. (d).

1976—Pub. L. 94–455 designated existing provisions as subsec. (a), added subsec. (a) heading “General rule”, and added subsec. (b).

Statutory Notes and Related SubsidiariesEffective Date of 1976 Amendment

Pub. L. 94–455, title XXI, § 2131(f)(3)–(5), Oct. 4, 1976, 90 Stat. 1924, 1925, provided that:“(3) Except as provided in paragraph (4), the amendments made by subsections (b) and (c) [amending this section and sections 722 and 723 of this title] shall apply to transfers made after February 17, 1976, in taxable years ending after such date.“(4) The amendments made by subsections (b) and (c) shall not apply to transfers to a partnership made on or before the 90th day after the date of the enactment of this Act [Oct. 4, 1976] if—“(A) either—“(i) a ruling request with respect to such transfers was filed with the Internal Revenue Service before March 27, 1976, or“(ii) a registration statement with respect to such transfers was filed with the Securities and Exchange Commission before March 27, 1976,“(B) the securities transferred were deposited on or before the 60th day after the date of the enactment of this Act [Oct. 4, 1976], and“(C) either—“(i) the aggregate value (determined as of the close of the 60th day referred to in subparagraph (B), or, if earlier, the close of the deposit period) of the securities so transferred does not exceed $100,000,000, or“(ii) the securities transferred were all on deposit on February 29, 1976, pursuant to a registration statement referred to in subparagraph (A)(ii).“(5) If no registration statement was required to be filed with the Securities and Exchange Commission with respect to the transfer of securities to any partnership, then paragraph (4) shall be applied to such transfers—“(A) as if paragraph (4) did not contain subparagraph (A)(ii) thereof, and“(B) by substituting ‘$25,000,000’ for ‘$100,000,000’ in subparagraph (C)(i) thereof.”

Notes of Decisions

Cited in 24 cases (1 in the last 5 years), 1950–2025 · leading case: Long Term Capital Holdings v. United States, 330 F. Supp. 2d 122 (D. Conn. 2004).

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Long Term Capital Holdings v. United States, 330 F. Supp. 2d 122 (D. Conn. 2004). · cites it 2× “OTC, in a purported transaction under 26 U.S.C. § 721 , contributed to Long Term the tranches of preferred stock it received from the TRIPS and CHIPS transactions, which had a fair market value of approximately $4 million and a claimed basis of $400 million, in exchange for a…”

In re G-I Holdings Inc., 218 F.R.D. 428 (D.N.J. 2003). · cites it 2× “(“RPSSLP”) (as a whole, the “1990 Transaction”), failed to qualify as a nontaxable contribution to the capital of RPSSLP under 26 U.S.C. § 721 (a). Rather, the Government claims, the 1990 Transaction was a taxable disguised sale of property by Debtors to either RPSSLP or…”

Superior Trading, LLC v. Comm'r, 728 F.3d 676 (7th Cir. 2013). “See 26 U.S.C. § 721 (a). So if the asset is worth less than the contributor paid for it, that loss in value (what is termed “built-in loss”) will be recognized, and thus usable to reduce taxable income, only when the partnership sells the asset.”

Southgate Master Fund, L.L.C. Ex Rel. Montgomery Capital Advisors, LLC v. United States, 659 F.3d 466 (5th Cir. 2011). “26 U.S.C. § 721 (a)-(b). 9 . 26 U.S.C. § 723 .”

BC Ranch II, L.P. v. Comm'r, 867 F.3d 547 (5th Cir. 2017). “33 See 26 U.S.C. § 721 . 34 Treas. Reg. § 1.707-3 (b)(1)(i), (ii).”

Twenty Mile Jt. Venture, PND, Ltd. v. Comm'r, 200 F.3d 1268 (10th Cir. 1999). “See 26 U.S.C. § 721 (a). “Generally, neither a partnership nor any of its partners need recognize gain or loss as a result of the contribution of property to the partnership in exchange for a partnership interest.”

Polly's Props., LLC v. Dep't of Taxes, 2010 VT 41 (Vt. 2010). · cites it 2× “” 26 U.S.C. § 721 (a). Section 9603(24), which exempts transfers to an LLC at the time of its formation, also applies where “no gain or loss is recognized under the Internal Revenue Code” but references no specific federal statute because LLC’s are treated like partnerships or…”

Russian Recovery Fund Ltd. v. United States, 122 Fed. Cl. 600 (Fed. Cl. 2015). · cites it 2× “§ 704 ; 26 U.S.C. § 721 ; FPAA; economic substance; step transaction; Culbertson; penalties; reasonable reliance on tax advice OPINION BRUGGINK, Judge.”

Khan v. Gramercy Advisors, LLC, 2016 IL App (4th) 150435 (Ill. App. Ct. 2016). “(citing 26 U.S.C. § 721 (a) (2012)). If the asset is worth less than what the foreign partner paid for it, the loss in value, called "built-in loss," will be recognized only if and when the partnership sells the asset.”

Sol Diamond & Muriel Diamond v. Comm'r of Internal Revenue, 492 F.2d 286 (7th Cir. 1974). “26 U.S.C. § 721 is entitled “Nonrecognition of gain or loss on contribution,” and provides: “No gain or loss shall be recognized to a partnership or to any of its partners in the case of a contribution of property to the partnership in exchange for an interest in the partnership.”

John H. Otey, Jr. & Bettye G. Otey v. Comm'r of Internal Revenue, 634 F.2d 1046 (6th Cir. 1980). “He relied on Code section 721, 26 U.S.C. § 721 -“No gain or loss shall be recognized .”

Rovakat LLC v. Comm'r of IRS, 529 F. App'x 124 (3rd Cir. 2013). “See 26 U.S.C. § 721 (a). In this case, Rovakat treated Credicom Asia as a partnership and CNV as one of its partners, notwithstanding their corporate structures.”

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