§ 724. Character of gain or loss on contributed unrealized receivables, inventory items, and capital loss property

Legislative history

Reconstructed from this section’s Code source credit and amendment notes, resolved against the local Statutes at Large. Editorial notes are evidence, not the law that made the change.

1. 1984

   Tax Reform Act of 1984

   Pub. L. 98–369 div. A title I § 74(a) · 98 Stat. 494

   Enacted · 26 U.S.C. § 724

   Added Pub. L. 98–369, div. A, title I, § 74(a), July 18, 1984, 98 Stat. 592

   Source evidence

   Code source credit
   Added Pub. L. 98–369, div. A, title I, § 74(a), July 18, 1984, 98 Stat. 592

   Enacted provision · exact public law section
   (a) General Rule.— Subpart A of part II of subchapter K of chapter 1 (relating to contributions to a partnership) is amended by adding at the end thereof the following new section: “SEC. 724. CHARACTER OF GAIN OR LOSS ON CONTRIBUTED UNREALIZED RECEIVABLES. INVENTORY ITEMS, AND CAPITAL LOSS PROPERTY. “(a) Contributions of Unrealized Receivables.— In the case of any property which— “(1) was contributed to the partnership by a partner, and “(2) 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. “(b) Contributions of Inventory Items.— In the case of any property which— “(1) was contributed to the partnership by a partner, and “(2) 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. “(c) Contributions of Capital Loss Property.— In the case of any property which— “(1) was contributed by a partner to the partnership, and “(2) 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. “(d) Definitions.— For purposes of this section— “(1) Unrealized receivable.— 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). “(2) Inventory item.— The term ‘inventory item’ has the meaning given such term by section 751(d)(2) (determined by treating any reference to the partnership as referring to the partner and by applying section 1231 without regard to any holding period therein provided). “(3) Substituted basis property.— “(A) In general.— 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. “(B) Exception for stock in c corporation.— Subparagaph (A) shall not apply to any stock in a C corporation received in an exchange described in section 351.”

2. 1996

   Small Business Job Protection Act of 1996

   Pub. L. 104–188 title I § 1704(t)(63) · 110 Stat. 1755

   Substituted · 26 U.S.C. § 724(d)(3)(B)

   Pub. L. 104–188 substituted “Subparagraph” for “Subparagaph”

   Source evidence

   Code amendment note
   Subsec. (d)(3)(B). Pub. L. 104–188 substituted “Subparagraph” for “Subparagaph”.

   Enacted provision · exact public law section
   (63) Subparagraph (B) of section 724(d)(3) by striking “Subparagaph” and inserting “Subparagraph”.

3. 1997

   Pub. L. 105–34 title X § 1062(b)(3) · 111 Stat. 788

   Substituted · 26 U.S.C. § 724(d)(2)

   Pub. L. 105–34 substituted “section 751(d)” for “section 751(d)(2)”

   Source evidence

   Code amendment note
   Subsec. (d)(2). Pub. L. 105–34 substituted “section 751(d)” for “section 751(d)(2)”.

   Enacted provision · exact public law section
   (3) Sections 724(d)(2), 731(a)(2)(B), 731(c)(6), 732(c)(1)(A) (as amended by the preceding section), 735(a)(2), and 735(c)(1) are each amended by striking “section 751(d)(2)” and inserting “section 751(d)”.

   Effective date note
   Pub. L. 105–34, title X, § 1062(c), Aug. 5, 1997, 111 Stat. 947, provided that:

3 of 3 references resolved to an enrolled provision