26 U.S.C. § 732

Basis of distributed property other than money

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(a) Distributions other than in liquidation of a partner’s interest(1) General rule

The basis of property (other than money) distributed by a partnership to a partner other than in liquidation of the partner’s interest shall, except as provided in paragraph (2), be its adjusted basis to the partnership immediately before such distribution.

(2) Limitation

The basis to the distributee partner of property to which paragraph (1) is applicable shall not exceed the adjusted basis of such partner’s interest in the partnership reduced by any money distributed in the same transaction.

(b) Distributions in liquidation

The basis of property (other than money) distributed by a partnership to a partner in liquidation of the partner’s interest shall be an amount equal to the adjusted basis of such partner’s interest in the partnership reduced by any money distributed in the same transaction.

(c) Allocation of basis(1) In generalThe 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 increaseAny 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 decreaseAny 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

For purposes of subsections (a), (b), and (c), a partner who acquired all or a part of his interest by a transfer with respect to which the election provided in section 754 is not in effect, and to whom a distribution of property (other than money) is made with respect to the transferred interest within 2 years after such transfer, may elect, under regulations prescribed by the Secretary, to treat as the adjusted partnership basis of such property the adjusted basis such property would have if the adjustment provided in section 743(b) were in effect with respect to the partnership property. The Secretary may by regulations require the application of this subsection in the case of a distribution to a transferee partner, whether or not made within 2 years after the transfer, if at the time of the transfer the fair market value of the partnership property (other than money) exceeded 110 percent of its adjusted basis to the partnership.

(e) Exception

This section shall not apply to the extent that a distribution is treated as a sale or exchange of property under section 751(b) (relating to unrealized receivables and inventory items).

(f) Corresponding adjustment to basis of assets of a distributed corporation controlled by a corporate partner(1) In generalIf—(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 acquiredParagraph (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

The amount of the reduction under paragraph (1) shall not exceed the amount by which the sum of the aggregate adjusted bases of the property and the amount of money of the distributed corporation exceeds the corporate partner’s adjusted basis in the stock of the distributed corporation.

(B) Reduction not to exceed adjusted basis of property

No reduction under paragraph (1) in the basis of any property shall exceed the adjusted basis of such property (determined without regard to such reduction).

(4) Gain recognition where reduction limitedIf 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

For purposes of this subsection, the term “control” means ownership of stock meeting the requirements of section 1504(a)(2).

(6) Indirect distributions

For purposes of paragraph (1), if a corporation acquires (other than in a distribution from a partnership) stock the basis of which is determined (by reason of being distributed from a partnership) in whole or in part by reference to subsection (a)(2) or (b), the corporation shall be treated as receiving a distribution of such stock from a partnership.

(7) Special rule for stock in controlled corporation

If the property held by a distributed corporation is stock in a corporation which the distributed corporation controls, this subsection shall be applied to reduce the basis of the property of such controlled corporation. This subsection shall be reapplied to any property of any controlled corporation which is stock in a corporation which it controls.

(8) Regulations

The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this subsection, including regulations to avoid double counting and to prevent the abuse of such purposes.

(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), Aug. 5, 1997, 111 Stat. 945, 947; Pub. L. 106–170, title V, § 538(a), Dec. 17, 1999, 113 Stat. 1939.)Editorial NotesAmendments

1999—Subsec. (f). Pub. L. 106–170 added subsec. (f).

1997—Subsec. (c). Pub. L. 105–34, § 1061(a), amended heading and text of subsec. (c) generally. Prior to amendment, text read as follows: “The basis of distributed properties to which subsection (a)(2) or subsection (b) is applicable shall be allocated—

“(1) first to any unrealized receivables (as defined in section 751(c)) and inventory items (as defined in section 751(d)(2)) in an amount equal to the adjusted basis of each such property to the partnership (or if the basis to be allocated is less than the sum of the adjusted bases of such properties to the partnership, in proportion to such bases), and

“(2) to the extent of any remaining basis, to any other distributed properties in proportion to their adjusted bases to the partnership.”

Subsec. (c)(1)(A)(i). Pub. L. 105–34, § 1062(b)(3), substituted “section 751(d)” for “section 751(d)(2)”.

1976—Subsec. (d). Pub. L. 94–455 struck out “or his delegate” after “Secretary”.

Statutory Notes and Related SubsidiariesEffective Date of 1999 Amendment

Pub. L. 106–170, title V, § 538(b), Dec. 17, 1999, 113 Stat. 1940, provided that:“(1)In general.—Except as provided in paragraph (2), the amendment made by this section [amending this section] shall apply to distributions made after July 14, 1999.“(2)Partnerships in existence on July 14, 1999.—In the case of a corporation which is a partner in a partnership as of July 14, 1999, the amendment made by this section shall apply to any distribution made (or treated as made) to such partner from such partnership after June 30, 2001, except that this paragraph shall not apply to any distribution after the date of the enactment of this Act [Dec. 17, 1999] unless the partner makes an election to have this paragraph apply to such distribution on the partner’s return of Federal income tax for the taxable year in which such distribution occurs.”

Effective Date of 1997 Amendment

Pub. L. 105–34, title X, § 1061(b), Aug. 5, 1997, 111 Stat. 946, provided that: “The amendment made by subsection (a) [amending this section] shall apply to distributions after the date of the enactment of this Act [Aug. 5, 1997].”

Amendment by section 1062(b)(3) of Pub. L. 105–34 applicable to sales, exchanges, and distributions after Aug. 5, 1997, but not applicable to any sale or exchange pursuant to a written binding contract in effect on June 8, 1997, and at all times thereafter before such sale or exchange, see section 1062(c) of Pub. L. 105–34, set out as a note under section 724 of this title.

Notes of Decisions

Cited in 26 cases, 1949–2010 · leading case: Petaluma FX Partners, LLC v. Commissioner of Internal Revenue Service

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Petaluma FX Partners, LLC v. Commissioner of Internal Revenue Service (2010) cadc “In keeping with 26 U.S.C. § 732 (b), they took adjusted bases in the distributed stock equivalent to their adjusted bases in Petaluma immediately prior to the distribution.”

Sala v. United States (2010) ca10 “” 26 U.S.C. § 732 (b). Because Solid calculated its adjusted basis in its partnership interest as approximately $69 million and received $8 million in cash upon liquidation, Solid’s basis in the foreign currency contracts was calculated as approximately $61 million.”

Dowd-Feder, Inc. v. Commissioner of Internal Revenue (1949) ca6 · cites it 2× “The Commissioner of Internal Revenue has raised a more troublesome question by his motion to dismiss the petition for review on the ground that this court is without jurisdiction by reason of section 732(c) of the Internal Revenue Code, 26 U.S.C.A. § 732 (c), which provides:…”

United States v. Koppers Co. (1955) scotus “295 , 673, 26 U. S. C. § 732 . A taxpayer never was permitted to file a return of its own under § 722.”

Central Paper Co. v. Commissioner of Internal Revenue (1952) ca6 “” This was in accordance with the provisions of § 732(a) Internal Revenue Code, 26 U.S.C.A. § 732 (a). The taxpayer prepared such a petition which was mailed at Chicago, Illinois, properly stamped and legibly addressed to “The Tax Court of the United States, Washington 4, D.”

Sala v. United States (2008) cod “26 U.S.C. § 732 . Under 26 U.S.C. § 731 , foreign currency is not considered “money” when distributed from an “investment partnership” — such as Deerhurst GP — that does not engage in a trade or business and whose assets consist substantially of marketable securities, including…”

Packer Pub. Co. v. Commissioner of Internal Revenue (1954) ca8 “” 26 U.S.C.A. § 732 (c). Broadly and generally stated, both § 722 and § 711 deal with determining the normal income base to be used for purposes of comparison with the income for the tax year in question in order to determine the excess profits for a given year which were earned…”

Commissioner of Internal Revenue v. Smith Paper, Inc. (1955) ca1 “Thereafter, pursuant to § 732 of the Code, 26 U.S.C.A. § 732 , the taxpayer filed in the Tax Court of the United States a petition seeking a review of the action of the Commissioner in denying its claims for abnormality refunds.”

H. Fendrich, Inc. v. Commissioner of Internal Revenue (1957) ca7 “It filed a petition under § 732 Internal Revenue Code of 1939, 1 26 U.S.C. § 732 for a “redetermination of the tax under this subchapter.”

Willys-Overland Motors, Inc. v. Commissioner of Internal Revenue (1955) ca6 “Code, 26 U.S. C.A. § 732(a). Prior to instituting this proceeding, the taxpayer had on September 22, 1949, filed with the Commissioner a claim for a tax refund in the amount of $34,681.”

Commissioner of Internal Revenue v. Seminole Manufacturing Company (1956) ca5 “…extent as decisions of the district courts in civil actions tried without a jury’; * * Í .26 U.S.C.A. ’§-7482(a) 7 . 26 U.S.C.A. § 732 .”

Colonial Amusement Co. v. Commissioner of Internal Revenue (1949) ca3 “(J) (ii), (Kj: The respondent moves to dismiss the petition for review, relying upon Section 732 (c) of the *569 Code, 26 U.S.C.A. § 732 (c), which provides that the determination of such a question “shall not be reviewed or redetermined by any court or agency except the Board.”

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— 26 U.S.C. § 732(a) — 1 case

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