§721 — Nonrecognition of gain or loss on contribution
118 citing cases
Statute Text — 26 U.S.C. §721
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.
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.
For regulatory authority to treat intangibles transferred to a partnership as sold, see section 367(d)(3).
Treasury Regulations
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Treas. Reg. §1.721-1Nonrecognition of gain or loss on contribution
(a) No gain or loss shall be recognized either to the partnership or to any of its partners upon a contribution of property, including installment obligations, to the partnership in exchange for a partnership interest. This rule applies whether the contribution is made to a partnership in the process of formation or to a partnership which is already formed and operating. Section 721 shall not apply to a transaction between a partnership and a partner not acting in his capacity as a partner since such a transaction is governed by section 707. Rather than contributing property to a partnership, a partner may sell property to the partnership or may retain the ownership of property and allow the partnership to use it. In all cases, the substance of the transaction will govern, rather than its form. See paragraph (c)(3) of § 1.731-1. Thus, if the transfer of property by the partner to the partnership results in the receipt by the partner of money or other consideration, including a promissory obligation fixed in amount and time for payment, the transaction will be treated as a sale or exchange under section 707 rather than as a contribution under section 721. For the rules governing the treatment of liabilities to which contributed property is subject, see section 752 and § 1.752-1.
(b)(1) Normally, under local law, each partner is entitled to be repaid his contributions of money or other property to the partnership (at the value placed upon such property by the partnership at the time of the contribution) whether made at the formation of the partnership or subsequent thereto. To the extent that any of the partners gives up any part of his right to be repaid his contributions (as distinguished from a share in partnership profits) in favor of another partner as compensation for services (or in satisfaction of an obligation), section 721 does not apply. The value of an interest in such partnership capital so transferred to a partner as compensation for services constitutes income to the partner under section 61. The amount of such income is the fair market value of the interest in capital so transferred, either at the time the transfer is made for past services, or at the time the services have been rendered where the transfer is conditioned on the completion of the transferee's future services. The time when such income is realized depends on all the facts and circumstances, including any substantial restrictions or conditions on the compensated partner's right to withdraw or otherwise dispose of such interest. To the extent that an interest in capital representing compensation for services rendered by the decedent prior to his death is transferred after his death to the decedent's successor in interest, the fair market value of such interest is income in respect of a decedent under section 691.
(2) To the extent that the value of such interest is: (i) Compensation for services rendered to the partnership, it is a guaranteed payment for services under section 707(c); (ii) compensation for services rendered to a partner, it is not deductible by the partnership, but is deductible only by such partner to the extent allowable under this chapter.
(c) Underwritings of partnership interests—(1) In general. For the purpose of section 721, if a person acquires a partnership interest from an underwriter in exchange for cash in a qualified underwriting transaction, the person who acquires the partnership interest is treated as transferring cash directly to the partnership in exchange for the partnership interest and the underwriter is disregarded. A qualified underwriting transaction is a transaction in which a partnership issues partnership interests for cash in an underwriting in which either the underwriter is an agent of the partnership or the underwriter's ownership of the partnership interests is transitory.
(2) Effective date. This paragraph (c) is effective for qualified underwriting transactions occurring on or after May 1, 1996.
(d) Debt-for-equity exchange—(1) In general. Except as otherwise provided in section 721 and the regulations under section 721, section 721 applies to a contribution of a partnership's indebtedness by a creditor to the debtor partnership in exchange for a capital or profits interest in the partnership (debt-for-equity exchange). See § 1.108-8(a) for rules in determining the debtor partnership's discharge of indebtedness income.
(2) Exception. Section 721 does not apply to a debt-for-equity exchange to the extent the transfer of the partnership interest to the creditor is in exchange for the partnership's indebtedness for unpaid rent, royalties, or interest (including accrued original issue discount) that accrued on or after the beginning of the creditor's holding period for the indebtedness. The debtor partnership will not recognize gain or loss upon the transfer of a partnership interest to a creditor in a debt-for-equity exchange for unpaid rent, royalties, or interest (including accrued original issue discount).
(3) Cross reference. For rules in determining whether a partnership interest transferred to a creditor in a debt-for-equity exchange is treated as payment of interest or accrued original issue discount, see §§ 1.446-2 and 1.1275-2, respectively.
(4) Effective/applicability date. This paragraph (d) applies to debt-for-equity exchanges occurring on or after November 17, 2011.
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Treas. Reg. §1.721-1(a)No gain or loss shall be recognized either to the partnership or to any of its partners upon a contribution of property, including installment obligations, to the partnership in exchange for a partnership interest.
No gain or loss shall be recognized either to the partnership or to any of its partners upon a contribution of property, including installment obligations, to the partnership in exchange for a partnership interest. This rule applies whether the contribution is made to a partnership in the process of formation or to a partnership which is already formed and operating. Section 721 shall not apply to a transaction between a partnership and a partner not acting in his capacity as a partner since such a transaction is governed by section 707. Rather than contributing property to a partnership, a partner may sell property to the partnership or may retain the ownership of property and allow the partnership to use it. In all cases, the substance of the transaction will govern, rather than its form. See paragraph (c)(3) of § 1.731-1. Thus, if the transfer of property by the partner to the partnership results in the receipt by the partner of money or other consideration, including a promissory obligation fixed in amount and time for payment, the transaction will be treated as a sale or exchange under section 707 rather than as a contribution under section 721. For the rules governing the treatment of liabilities to which contributed property is subject, see section 752 and § 1.752-1.
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Treas. Reg. §1.721-1(b)§1.721-1(b)
(1) Normally, under local law, each partner is entitled to be repaid his contributions of money or other property to the partnership (at the value placed upon such property by the partnership at the time of the contribution) whether made at the formation of the partnership or subsequent thereto. To the extent that any of the partners gives up any part of his right to be repaid his contributions (as distinguished from a share in partnership profits) in favor of another partner as compensation for services (or in satisfaction of an obligation), section 721 does not apply. The value of an interest in such partnership capital so transferred to a partner as compensation for services constitutes income to the partner under section 61. The amount of such income is the fair market value of the interest in capital so transferred, either at the time the transfer is made for past services, or at the time the services have been rendered where the transfer is conditioned on the completion of the transferee's future services. The time when such income is realized depends on all the facts and circumstances, including any substantial restrictions or conditions on the compensated partner's right to withdraw or otherwise dispose of such interest. To the extent that an interest in capital representing compensation for services rendered by the decedent prior to his death is transferred after his death to the decedent's successor in interest, the fair market value of such interest is income in respect of a decedent under section 691.
(2) To the extent that the value of such interest is: (i) Compensation for services rendered to the partnership, it is a guaranteed payment for services under section 707(c); (ii) compensation for services rendered to a partner, it is not deductible by the partnership, but is deductible only by such partner to the extent allowable under this chapter.
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Treas. Reg. §1.721-1(c)Underwritings of partnership interests—(1) In general.
Underwritings of partnership interests—(1) In general. For the purpose of section 721, if a person acquires a partnership interest from an underwriter in exchange for cash in a qualified underwriting transaction, the person who acquires the partnership interest is treated as transferring cash directly to the partnership in exchange for the partnership interest and the underwriter is disregarded. A qualified underwriting transaction is a transaction in which a partnership issues partnership interests for cash in an underwriting in which either the underwriter is an agent of the partnership or the underwriter's ownership of the partnership interests is transitory.
(2) Effective date. This paragraph (c) is effective for qualified underwriting transactions occurring on or after May 1, 1996.
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Treas. Reg. §1.721-1(d)Debt-for-equity exchange—(1) In general.
Debt-for-equity exchange—(1) In general. Except as otherwise provided in section 721 and the regulations under section 721, section 721 applies to a contribution of a partnership's indebtedness by a creditor to the debtor partnership in exchange for a capital or profits interest in the partnership (debt-for-equity exchange). See § 1.108-8(a) for rules in determining the debtor partnership's discharge of indebtedness income.
(2) Exception. Section 721 does not apply to a debt-for-equity exchange to the extent the transfer of the partnership interest to the creditor is in exchange for the partnership's indebtedness for unpaid rent, royalties, or interest (including accrued original issue discount) that accrued on or after the beginning of the creditor's holding period for the indebtedness. The debtor partnership will not recognize gain or loss upon the transfer of a partnership interest to a creditor in a debt-for-equity exchange for unpaid rent, royalties, or interest (including accrued original issue discount).
(3) Cross reference. For rules in determining whether a partnership interest transferred to a creditor in a debt-for-equity exchange is treated as payment of interest or accrued original issue discount, see §§ 1.446-2 and 1.1275-2, respectively.
(4) Effective/applicability date. This paragraph (d) applies to debt-for-equity exchanges occurring on or after November 17, 2011.
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Treas. Reg. §1.721-2Noncompensatory options
(a) Exercise of a noncompensatory option—(1) In general. Notwithstanding § 1.721-1(b)(1), section 721 applies to the exercise (as defined in paragraph (g)(4) of this section) of a noncompensatory option (as defined in paragraph (f) of this section). Except as provided in paragraph (a)(2) of this section, section 721 applies to the exercise of a noncompensatory option when the holder pays the exercise price with either property or cash, regardless of whether the terms of the option require or permit cash payment. However, if the exercise price (as defined in paragraph (g)(5) of this section) of a noncompensatory option exceeds the capital account received by the option holder on the exercise of the option, then general tax principles will apply to determine the tax consequences of the transaction.
(2) Exception. Section 721 does not apply to the exercise of a noncompensatory option to the extent that the exercise price is satisfied with the partnership's obligation to the option holder for unpaid rent, royalties, or interest (including accrued original issue discount) that accrued on or after the beginning of the option holder's holding period for the obligation. The issuing partnership will not recognize gain or loss upon the transfer of a partnership interest to an exercising option holder in satisfaction of such unpaid rent, royalties, or interest (including accrued original issue discount).
(b) Transfer of property or satisfaction of an obligation in exchange for a noncompensatory option—(1) In general. Except as provided in paragraph (b)(2) of this section, section 721 does not apply to a transfer of property to a partnership in exchange for a noncompensatory option, or to the satisfaction of a partnership obligation with a noncompensatory option.
(2) Exception. Section 721 does apply to a transfer of property to a partnership in exchange for convertible equity (as defined in paragraph (g)(3) of this section).
(c) Lapse of a noncompensatory option. Section 721 does not apply to the lapse of a noncompensatory option.
(d) Cash settlement of a noncompensatory option. Section 721 does not apply to the settlement of a noncompensatory option in cash or property other than a partnership interest in the issuing partnership.
(e) Issuance of a partnership interest in satisfaction of indebtedness for interest on convertible debt. Section 721 does not apply to the transfer of a partnership interest to a noncompensatory option holder upon conversion of convertible debt in the partnership to the extent that the transfer is in satisfaction of the partnership's indebtedness for unpaid interest (including accrued original issue discount) on the convertible debt that accrued on or after the beginning of the convertible debt holder's holding period for the indebtedness. The debtor partnership will not, however, recognize gain or loss upon such conversion. For rules in determining whether a partnership interest transferred to a creditor is treated as payment of interest or accrued original issue discount, see §§ 1.446-2 and 1.1275-2, respectively.
(f) Scope. The provisions of this section apply only to noncompensatory options. For purposes of this section, the term noncompensatory option means an option (as defined in paragraph (g)(1) of this section) issued by a partnership (the issuing partnership), other than an option issued in connection with the performance of services.
(g) Definitions. The following definitions apply for the purposes of this section:
(1) Option means a contractual right to acquire an interest in the issuing partnership, including a call option, warrant, or other similar arrangement, the conversion feature of convertible debt (as defined in paragraph (g)(2) of this section), or the conversion feature of convertible equity (as defined in paragraph (g)(3) of this section). To achieve the purposes of this section, the Commissioner can treat other contractual agreements, including a futures contract, a forward contract, or a notional principal contract, as an option. A contract that otherwise constitutes an option will not fail to be treated as an option for purposes of this section merely because it may or must be settled in cash or property other than a partnership interest.
(2) Convertible debt is any indebtedness of a partnership that is convertible into an interest in the partnership that issued the debt.
(3) Convertible equity is equity in a partnership that is convertible into a different equity interest in the partnership that issued the convertible equity.
(4) Exercise means the exercise of an option in exchange for an interest in the issuing partnership or the conversion of convertible debt or convertible equity into an interest in the issuing partnership.
(5) Exercise price means, in the case of a call option, the exercise price of the call option; in the case of convertible equity, the converting partner's capital account with respect to that convertible equity, increased by the fair market value of cash or other property contributed to the partnership in connection with the conversion; and, in the case of convertible debt, the adjusted issue price (within the meaning of § 1.1275-1(b)) of the debt converted, increased by accrued but unpaid qualified stated interest on the debt and by the fair market value of cash or other property contributed to the partnership in connection with the conversion.
(h) Example. The following example illustrates the provisions of this section:
(i) Effective/applicability date. This section applies to noncompensatory options that are issued on or after February 5, 2013.
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Treas. Reg. §1.721-2(a)Exercise of a noncompensatory option—(1) In general.
Exercise of a noncompensatory option—(1) In general. Notwithstanding § 1.721-1(b)(1), section 721 applies to the exercise (as defined in paragraph (g)(4) of this section) of a noncompensatory option (as defined in paragraph (f) of this section). Except as provided in paragraph (a)(2) of this section, section 721 applies to the exercise of a noncompensatory option when the holder pays the exercise price with either property or cash, regardless of whether the terms of the option require or permit cash payment. However, if the exercise price (as defined in paragraph (g)(5) of this section) of a noncompensatory option exceeds the capital account received by the option holder on the exercise of the option, then general tax principles will apply to determine the tax consequences of the transaction.
(2) Exception. Section 721 does not apply to the exercise of a noncompensatory option to the extent that the exercise price is satisfied with the partnership's obligation to the option holder for unpaid rent, royalties, or interest (including accrued original issue discount) that accrued on or after the beginning of the option holder's holding period for the obligation. The issuing partnership will not recognize gain or loss upon the transfer of a partnership interest to an exercising option holder in satisfaction of such unpaid rent, royalties, or interest (including accrued original issue discount).
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Treas. Reg. §1.721-2(b)Transfer of property or satisfaction of an obligation in exchange for a noncompensatory option—(1) In general.
Transfer of property or satisfaction of an obligation in exchange for a noncompensatory option—(1) In general. Except as provided in paragraph (b)(2) of this section, section 721 does not apply to a transfer of property to a partnership in exchange for a noncompensatory option, or to the satisfaction of a partnership obligation with a noncompensatory option.
(2) Exception. Section 721 does apply to a transfer of property to a partnership in exchange for convertible equity (as defined in paragraph (g)(3) of this section).
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Treas. Reg. §1.721-2(c)Lapse of a noncompensatory option.
Lapse of a noncompensatory option. Section 721 does not apply to the lapse of a noncompensatory option.
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Treas. Reg. §1.721-2(d)Cash settlement of a noncompensatory option.
Cash settlement of a noncompensatory option. Section 721 does not apply to the settlement of a noncompensatory option in cash or property other than a partnership interest in the issuing partnership.
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Treas. Reg. §1.721-2(e)Issuance of a partnership interest in satisfaction of indebtedness for interest on convertible debt.
Issuance of a partnership interest in satisfaction of indebtedness for interest on convertible debt. Section 721 does not apply to the transfer of a partnership interest to a noncompensatory option holder upon conversion of convertible debt in the partnership to the extent that the transfer is in satisfaction of the partnership's indebtedness for unpaid interest (including accrued original issue discount) on the convertible debt that accrued on or after the beginning of the convertible debt holder's holding period for the indebtedness. The debtor partnership will not, however, recognize gain or loss upon such conversion. For rules in determining whether a partnership interest transferred to a creditor is treated as payment of interest or accrued original issue discount, see §§ 1.446-2 and 1.1275-2, respectively.
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Treas. Reg. §1.721-2(f)Scope.
Scope. The provisions of this section apply only to noncompensatory options. For purposes of this section, the term noncompensatory option means an option (as defined in paragraph (g)(1) of this section) issued by a partnership (the issuing partnership), other than an option issued in connection with the performance of services.
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Treas. Reg. §1.721-2(g)Definitions.
Definitions. The following definitions apply for the purposes of this section:
(1) Option means a contractual right to acquire an interest in the issuing partnership, including a call option, warrant, or other similar arrangement, the conversion feature of convertible debt (as defined in paragraph (g)(2) of this section), or the conversion feature of convertible equity (as defined in paragraph (g)(3) of this section). To achieve the purposes of this section, the Commissioner can treat other contractual agreements, including a futures contract, a forward contract, or a notional principal contract, as an option. A contract that otherwise constitutes an option will not fail to be treated as an option for purposes of this section merely because it may or must be settled in cash or property other than a partnership interest.
(2) Convertible debt is any indebtedness of a partnership that is convertible into an interest in the partnership that issued the debt.
(3) Convertible equity is equity in a partnership that is convertible into a different equity interest in the partnership that issued the convertible equity.
(4) Exercise means the exercise of an option in exchange for an interest in the issuing partnership or the conversion of convertible debt or convertible equity into an interest in the issuing partnership.
(5) Exercise price means, in the case of a call option, the exercise price of the call option; in the case of convertible equity, the converting partner's capital account with respect to that convertible equity, increased by the fair market value of cash or other property contributed to the partnership in connection with the conversion; and, in the case of convertible debt, the adjusted issue price (within the meaning of § 1.1275-1(b)) of the debt converted, increased by accrued but unpaid qualified stated interest on the debt and by the fair market value of cash or other property contributed to the partnership in connection with the conversion.
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Treas. Reg. §1.721-2(h)Example.
Example. The following example illustrates the provisions of this section:
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Treas. Reg. §1.721-2(i)Effective/applicability date.
Effective/applicability date. This section applies to noncompensatory options that are issued on or after February 5, 2013.
118 Citing Cases
These nonrecognition rules do not apply, however, where the transaction is found in substance to be a disguised sale of property. See Jacobson v. Commissioner, 96 T.C. 577 (1991), aff’d per curiam, 963 F.2d 218 (8th Cir. 1992). A disguised sale occurs where a partner contributes property to a partnership and receives a related distribut
Treasury Regulation § 1.721-1(b)(1) states in part: To the extent that any of the partners gives up any part of his right to be repaid his contributions (as distinguished from a share in partnership profits) in favor of another partner as compensation for services (or in satisfaction of an obligation), section 721 does not apply.
We do not agree with petitioner’s contention that Hawks Bluff reported the contribution as a sale.
-18- [*18] If we were to adopt respondent’s views of the receipt of the class C units entirely on the basis of the call option agreement between NPA, Inc., and ES NPA, one would question whether section 721 and its underlying regulations have any relevance to this case since under the call option agreement ES NPA did not transfer anything to IDS in exchange for the interest received in IDS.
Each trading company and main trust takes its own basis from [Lojas] Arapua[, S.A.] or Globex [Utilidades, S.A.] by carryoverunder Section 721 [sic 723] or Section 1015." The Court disagrees with petitioner that the partnerships may now recharacterize their transactions for Federal income tax purposes as mere agent-principal transactions to reflect the substance rather than the form ofthe transactions.
Section 752(a) provides that "[a]ny increase in a partner's share ofthe liabilities ofa partnership, or any increase in a partner's individual liabilities by reason ofthe assumption by such partner ofpartnership liabilities, shall be considered as a contribution of money by such partner to the partnership." The Christine Dynas
Section 752(a) provides that "[a]ny increase in a partner's share ofthe liabilities ofa partnership, or any increase in a partner's individual liabilities by reason ofthe assumption by such partner ofpartnership liabilities, shall be considered as a contribution of money by such partner to the partnership." The Christine Dynas
Each trading company and main trust takes its own basis from [Lojas] Arapua[, S.A.] or Globex [Utilidades, S.A.] by carryoverunder Section 721 [sic 723] or Section 1015." The Court disagrees with petitioner that the partnerships may now recharacterize their transactions for Federal income tax purposes as mere agent-principal transactions to reflect the substance rather than the form ofthe transactions.
that amount presumably constituted a contribution to the firm's capital and would increase his own capital account at the firm, see 26 C.F.R. sec. 1.704-1(b)(2)(iv)(b) and (c), Income Tax Regs., but such a capital contribution is not deductible, see sec. 721 (providing nonrecognition treatment for contributions to partnerships by partners); Lopo v. Commissioner, T.C. Memo. 1961-126, 20 T.C.M. (CCH) 620, 624 (1961) (holding that capital contributions tojoint ventures are not deductible business e
artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10
artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10
artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10
artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10
artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10
artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10
artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10
artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10
That regulation states that it applies to assumptions ofliabilities occurring "after October 18, 1999, and before June 24, 2003."¹² It provides that if, in a transaction described in section 721, a partnership assumes a liability (as defined in section 358(h)(3)) ofa partner (other than a liability to which section 752(a) and (b) apply), then, after application ofsection 752(a) and (b), the partner's basis in the partnership is reduced (but not below the adjusted value ofsuch interest) by the am
artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10
artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10
artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10
artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10
artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10
artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10
artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10
artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10
artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10
artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10
artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10
artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10
artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10
artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10
artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10
artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10
artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10
artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10
artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10
artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10
artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10
artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10
artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10
artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10
artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10
artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10
artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10
artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10
ership for Federal income tax purposes for purposes of servicing and collecting distressed consumer receivables owed to the retailers; (2) whether the Brazilian retailers made valid contributions of the receivables to the purported partnership under section 721; (3) whether the retailers’ claimed contributions to and subsequent redemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale of the receivables, such that the receivables had a cost basis under sectio
Nonrecognition ofgain or loss on contribution.-- * * ·* * * * * (b)(1)* * * To the extent that any ofthe partners gives up any part ofhis rightto be repaid his contributions (as distinguished from a share in partnership profits) in favor ofanother partner as compensation for services * * * section 721 does not apply.
By contrast, the issue here is whether the nonrecognition provisions ofsection 721 apply to petitioners' payments to Desert Academy.
-7- In Superior Trading I, we held that: (1) a bona fide partnership was never formed for Federal tax purposes between Arapua and Jetstream; (2) Arapua never made a valid contribution ofthe consumer receivables to the purported partnership under section 721; (3) these receivables should not receive carryoverbasis treatment under section 723; and (4) Arapua's claimed contribution and subsequent redemption from the purportedpartnership should be collapsed into a single transaction and recharacteri
-7- In Superior Trading I, we held that: (1) a bona fide partnership was never formed for Federal tax purposes between Arapua and Jetstream; (2) Arapua never made a valid contribution ofthe consumer receivables to the purported partnership under section 721; (3) these receivables should not receive carryoverbasis treatment under section 723; and (4) Arapua's claimed contribution and subsequent redemption from the purportedpartnership should be collapsed into a single transaction and recharacteri
-7- In Superior Trading I, we held that: (1) a bona fide partnership was never formed for Federal tax purposes between Arapua and Jetstream; (2) Arapua never made a valid contribution ofthe consumer receivables to the purported partnership under section 721; (3) these receivables should not receive carryoverbasis treatment under section 723; and (4) Arapua's claimed contribution and subsequent redemption from the purportedpartnership should be collapsed into a single transaction and recharacteri
-7- In Superior Trading I, we held that: (1) a bona fide partnership was never formed for Federal tax purposes between Arapua and Jetstream; (2) Arapua never made a valid contribution ofthe consumer receivables to the purported partnership under section 721; (3) these receivables should not receive carryoverbasis treatment under section 723; and (4) Arapua's claimed contribution and subsequent redemption from the purportedpartnership should be collapsed into a single transaction and recharacteri
retailer; (2) whether this Brazilian retailer made a valid contribution of the consumer receivables to the purported partnership under section 721;1 (3) whether these receivables should receive carryover basis treatment under section 723; (4) whether the Brazilian retailer's claimed contribution and subsequent redemption.from the purported partnership should be collapsed into a single transaction and recharacterized as a sale of the receivables; and (5) whether the section 6662 ac
retailer; (2) whether this Brazilian retailer made a valid contribution of the consumer receivables to the purported partnership under section 721;1 (3) whether these receivables should receive carryover basis treatment under section 723; (4) whether the Brazilian retailer's claimed contribution and subsequent redemption.from the purported partnership should be collapsed into a single transaction and recharacterized as a sale of the receivables; and (5) whether the section 6662 ac
retailer; (2) whether this Brazilian retailer made a valid contribution of the consumer receivables to the purported partnership under section 721;1 (3) whether these receivables should receive carryover basis treatment under section 723; (4) whether the Brazilian retailer's claimed contribution and subsequent redemption.from the purported partnership should be collapsed into a single transaction and recharacterized as a sale of the receivables; and (5) whether the section 6662 ac
retailer; (2) whether this Brazilian retailer made a valid contribution of the consumer receivables to the purported partnership under section 721;1 (3) whether these receivables should receive carryover basis treatment under section 723; (4) whether the Brazilian retailer's claimed contribution and subsequent redemption.from the purported partnership should be collapsed into a single transaction and recharacterized as a sale of the receivables; and (5) whether the section 6662 ac
retailer; (2) whether this Brazilian retailer made a valid contribution of the consumer receivables to the purported partnership under section 721;1 (3) whether these receivables should receive carryover basis treatment under section 723; (4) whether the Brazilian retailer's claimed contribution and subsequent redemption.from the purported partnership should be collapsed into a single transaction and recharacterized as a sale of the receivables; and (5) whether the section 6662 ac
retailer; (2) whether this Brazilian retailer made a valid contribution of the consumer receivables to the purported partnership under section 721;1 (3) whether these receivables should receive carryover basis treatment under section 723; (4) whether the Brazilian retailer's claimed contribution and subsequent redemption.from the purported partnership should be collapsed into a single transaction and recharacterized as a sale of the receivables; and (5) whether the section 6662 ac
retailer; (2) whether this Brazilian retailer made a valid contribution of the consumer receivables to the purported partnership under section 721;1 (3) whether these receivables should receive carryover basis treatment under section 723; (4) whether the Brazilian retailer's claimed contribution and subsequent redemption.from the purported partnership should be collapsed into a single transaction and recharacterized as a sale of the receivables; and (5) whether the section 6662 ac
retailer; (2) whether this Brazilian retailer made a valid contribution of the consumer receivables to the purported partnership under section 721;1 (3) whether these receivables should receive carryover basis treatment under section 723; (4) whether the Brazilian retailer's claimed contribution and subsequent redemption.from the purported partnership should be collapsed into a single transaction and recharacterized as a sale of the receivables; and (5) whether the section 6662 ac
23 - a quarterly investment advisory fee and a one-time, fixed $20,000 fee specifically for '2001 .37 When CF Advisors became a member in Palm Canyon, Palm Canyon became classified as a partnership for Federal income tax purposes .38 Accordingly, AHI,' ;which'until then had been the sole member of Palm Canyon, was-treated under section 721'as contributing all of the assets of the limited liability company, which on the date of' .the contribution consisted of $825,000`and the long MLD option, to.
iricreased`by the amount of any gain recognized-under'section 721'(b)'to the contributing partner at the'time of contribution .
tered into a transaction with its subsidiary, KTVU, :Inc ., to distribute partnership interests to the ;partners of KTVU''Partnership . To the extent KTVU, Inc . -contributed excess value, it is deemed to have receive d a partnership interest in the section 721 . contribution . Subsequently, KTVU, Inc . made a constructive distribution of a portion of the KTVU Partnership interest for the'!benefit ofjthe Shareholder Trusts, which triggered section 311(b) gain . In his accompanying memorandum of
Claimed Application of Partnership Tax Rules Petitioner’s position is that when the banks contributed the high-basis, low-value properties (the receivables and SMHC stock) to SMP in exchange for preferred interests, the transaction was a nontaxable event under section 721; SMP received bases equal to the banks’ bases in the contributed properties.
Filed June 29, 2000. R’s notice of final partnership administrative adjustment (FPAA) treated 1990 transfers of business assets to P’s partnership as taxable sales by P rather than as nontaxable transfers in exchange for partnership interests under sec. 721, I.R.C. P, a partner other than the tax matters partner, filed the petition and then moved for summary judgment on the ground that the period of limitations for assessing any tax resulting from this partnership proceeding has expired. R alleg
Section 721 provides that "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." Respondent's reliance on section 731 is misplaced.
Respondent, relying on section 721, continues with the additional premise that the deemed recontribution of the partnership property to the new partnership is an exchange.
l for $3.6 million, no part of the gain on which is allocable to him, and a distribution by Pecaris-- nontaxable to him under section 731--of a 25-percent undivided interest in the Mall, followed by his contribution--nontaxable to - 16 - him under section 721--to Coastal of that interest,11 with the remaining $500,000 of mortgage loan proceeds being used to discharge the portion of the transaction expenses and preexisting liabilities attributable to his 25-percent undivided interest received fro
howing that respondent’s determination is in error and/or that the amounts in controversy were capital contributions. Rule 142(a). Petitioners assert that the conversion of the loan into a partnership capital interest is a nonrecognition event under section 721. Section 721 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." We must decide if the sub