§731 — Extent of recognition of gain or loss on distribution
65 cases·15 followed·7 distinguished·6 questioned·1 criticized·1 overruled·35 cited—23% support
Statute Text — 26 U.S.C. §731
In the case of a distribution by a partnership to a partner—
gain shall not be recognized to such partner, except to the extent that any money distributed exceeds the adjusted basis of such partner’s interest in the partnership immediately before the distribution, and
loss shall not be recognized to such partner, except that upon a distribution in liquidation of a partner’s interest in a partnership where no property other than that described in subparagraph (A) or (B) is distributed to such partner, loss shall be recognized to the extent of the excess of the adjusted basis of such partner’s interest in the partnership over the sum of—
any money distributed, and
the basis to the distributee, as determined under section 732, of any unrealized receivables (as defined in section 751(c)) and inventory (as defined in section 751(d)).
Any gain or loss recognized under this subsection shall be considered as gain or loss from the sale or exchange of the partnership interest of the distributee partner.
No gain or loss shall be recognized to a partnership on a distribution to a partner of property, including money.
For purposes of subsection (a)(1) and section 737—
the term “money” includes marketable securities, and
such securities shall be taken into account at their fair market value as of the date of the distribution.
For purposes of this subsection:
The term “marketable securities” means financial instruments and foreign currencies which are, as of the date of the distribution, actively traded (within the meaning of section 1092(d)(1)).
Such term includes—
any interest in—
a common trust fund, or
a regulated investment company which is offering for sale or has outstanding any redeemable security (as defined in section 2(a)(32) of the Investment Company Act of 1940) of which it is the issuer,
any financial instrument which, pursuant to its terms or any other arrangement, is readily convertible into, or exchangeable for, money or marketable securities,
any financial instrument the value of which is determined substantially by reference to marketable securities,
except to the extent provided in regulations prescribed by the Secretary, any interest in a precious metal which, as of the date of the distribution, is actively traded (within the meaning of section 1092(d)(1)) unless such metal was produced, used, or held in the active conduct of a trade or business by the partnership,
except as otherwise provided in regulations prescribed by the Secretary, interests in any entity if substantially all of the assets of such entity consist (directly or indirectly) of marketable securities, money, or both, and
to the extent provided in regulations prescribed by the Secretary, any interest in an entity not described in clause (v) but only to the extent of the value of such interest which is attributable to marketable securities, money, or both.
The term “financial instrument” includes stocks and other equity interests, evidences of indebtedness, options, forward or futures contracts, notional principal contracts, and derivatives.
Paragraph (1) shall not apply to the distribution from a partnership of a marketable security to a partner if—
the security was contributed to the partnership by such partner, except to the extent that the value of the distributed security is attributable to marketable securities or money contributed (directly or indirectly) to the entity to which the distributed security relates,
to the extent provided in regulations prescribed by the Secretary, the property was not a marketable security when acquired by such partnership, or
such partnership is an investment partnership and such partner is an eligible partner thereof.
In the case of a distribution of marketable securities to a partner, the amount taken into account under paragraph (1) shall be reduced (but not below zero) by the excess (if any) of—
such partner’s distributive share of the net gain which would be recognized if all of the marketable securities of the same class and issuer as the distributed securities held by the partnership were sold (immediately before the transaction to which the distribution relates) by the partnership for fair market value, over
such partner’s distributive share of the net gain which is attributable to the marketable securities of the same class and issuer as the distributed securities held by the partnership immediately after the transaction, determined by using the same fair market value as used under clause (i).
Under regulations prescribed by the Secretary, all marketable securities held by the partnership may be treated as marketable securities of the same class and issuer as the distributed securities.
For purposes of subparagraph (A)(iii):
The term “investment partnership” means any partnership which has never been engaged in a trade or business and substantially all of the assets (by value) of which have always consisted of—
money,
stock in a corporation,
notes, bonds, debentures, or other evidences of indebtedness,
interest rate, currency, or equity notional principal contracts,
foreign currencies,
interests in or derivative financial instruments (including options, forward or futures contracts, short positions, and similar financial instruments) in any asset described in any other subclause of this clause or in any commodity traded on or subject to the rules of a board of trade or commodity exchange,
other assets specified in regulations prescribed by the Secretary, or
any combination of the foregoing.
A partnership shall not be treated as engaged in a trade or business by reason of—
any activity undertaken as an investor, trader, or dealer in any asset described in clause (i), or
any other activity specified in regulations prescribed by the Secretary.
The term “eligible partner” means any partner who, before the date of the distribution, did not contribute to the partnership any property other than assets described in clause (i).
The term “eligible partner” shall not include the transferor or transferee in a nonrecognition transaction involving a transfer of any portion of an interest in a partnership with respect to which the transferor was not an eligible partner.
Except as otherwise provided in regulations prescribed by the Secretary—
a partnership shall be treated as engaged in any trade or business engaged in by, and as holding (instead of a partnership interest) a proportionate share of the assets of, any other partnership in which the partnership holds a partnership interest, and
a partner who contributes to a partnership an interest in another partnership shall be treated as contributing a proportionate share of the assets of the other partnership.
If the preceding sentence does not apply under such regulations with respect to any interest held by a partnership in another partnership, the interest in such other partnership shall be treated as if it were specified in a subclause of clause (i).
The basis of marketable securities with respect to which gain is recognized by reason of this subsection shall be—
their basis determined under section 732, increased by
the amount of such gain.
Any increase in basis attributable to the gain described in subparagraph (A)(ii) shall be allocated to marketable securities in proportion to their respective amounts of unrealized appreciation before such increase.
Sections 733 and 734 shall be applied as if no gain were recognized, and no adjustment were made to the basis of property, under this subsection.
In the case of a distribution of a marketable security which is an unrealized receivable (as defined in section 751(c)) or an inventory item (as defined in section 751(d)), any gain recognized under this subsection shall be treated as ordinary income to the extent of any increase in the basis of such security attributable to the gain described in paragraph (4)(A)(ii).
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this subsection, including regulations to prevent the avoidance of such purposes.
This section shall not apply to the extent otherwise provided by section 736 (relating to payments to a retiring partner or a deceased partner’s successor in interest), section 751 (relating to unrealized receivables and inventory items), and section 737 (relating to recognition of precontribution gain in case of certain distributions).
Treasury Regulations
- Treas. Reg. §Treas. Reg. §1.731-1 Extent of recognition of gain or loss on distribution
- Treas. Reg. §Treas. Reg. §1.731-1(a) Recognition of gain or loss to partner—(1) Recognition of gain.
- Treas. Reg. §Treas. Reg. §1.731-1(b) Gain or loss recognized by partnership.
- Treas. Reg. §Treas. Reg. §1.731-1(c) Exceptions.
- Treas. Reg. §Treas. Reg. §1.731-1(i) §1.731-1(i)
- Treas. Reg. §Treas. Reg. §1.731-2 Partnership distributions of marketable securities
- Treas. Reg. §Treas. Reg. §1.731-2(a) Marketable securities treated as money.
- Treas. Reg. §Treas. Reg. §1.731-2(b) Reduction of amount treated as money—(1) Aggregation of securities.
- Treas. Reg. §Treas. Reg. §1.731-2(c) Marketable securities—(1) In general.
- Treas. Reg. §Treas. Reg. §1.731-2(d) Exceptions—(1) In general.
- Treas. Reg. §Treas. Reg. §1.731-2(e) Investment partnerships—(1) In general.
- Treas. Reg. §Treas. Reg. §1.731-2(f) Basis rules—(1) Partner's basis—(i) Partner's basis in distributed securities.
- Treas. Reg. §Treas. Reg. §1.731-2(g) Coordination with other sections—(1) Sections 704(c)(1)(B) and 737—(i) In general.
- Treas. Reg. §Treas. Reg. §1.731-2(h) Anti-abuse rule.
- Treas. Reg. §Treas. Reg. §1.731-2(i) §1.731-2(i)
- Treas. Reg. §Treas. Reg. §1.731-2(j) Examples.
- Treas. Reg. §Treas. Reg. §1.731-2(k) Effective date.
65 Citing Cases
Section 731 provides that no gain or loss shall be recognized on a distribution from a partnership to a partner, unless the amount distributed exceeds the adjusted basis ofthe partner's interest in the partnership immediately before the distribution.
Section 731 governs these circumstances.
Respondent's Alternative Argument--A Deemed Distribution and Recontribution of Partnership Property Under Section 731 Constitutes a "sale or exchange" Within the Meaning of Section 1056 Respondent alternatively argues that if we hold that a partnership is to be treated as an entity for purposes of applying section 1056, a sale or exchange of the partnership assets nevertheless occurred under the entity theory.
731 concerns distributions to a partner acting in his capacity as a partner. Neither party asserts that sec. 731 applies in this case. Moreover, sec. 731 does not apply if a partner contributes property to a partnership and the partnership distributes property to the partner within a short period to effect an exchange of property between two o
731.201(8) (West 1995). 3 The terms “executor” and “personal representative” are synonymous. Fla. Stat. Ann. sec. 731.201(25) (West 1995) defines “personal representative” as a court appointed fiduciary who administers a decedent’s estate. For purposes of the Florida Probate Code, the definition supersedes “executor” and other synonymous terms
at the Tax Court finds that the sale of the horses from the partnership to Mr. Ramsburg was a sale for tax purposes, it is clear that the liquidation of the partnership, involving the distribution of only money, was a fully taxable transaction under §731 of the Code. Section 731(a) of the Code provides that gain or loss is recognized in the case of a liquidating distribution by a partnership to a partner which only consists of money. Any gain or loss recognized pursu- ant to §731(a) of the Code
(For different (continued...) - 21 - GMM acknowledges that, for purposes ofsection 731, it recognized gain as a result ofthe distributions by Premier, and it points to section 741 to demonstrate that such gain on liquidation is capital,just as ifGMM had sold the partnership interest.
Second, a partner may receive payments in circumstances where he/she is not treated as a partner. Sec. 707(a). And third, a partner may receive guaranteed payments for services or use of capital that do not represent distributions of partnership income. Sec. 707(c). Payments made to a partner either in his capacity other than as a partner
Section 731 provides that a partner recognizes gain to the extent that the amount of any money distributed exceeds the adjusted basis of the partner's interest in the partnership. Sec. 731(a). Section 1.731-1(a), Income Tax Regs., provides that this rule is applicable to current distributions and distributions in liquidation of a partner's entire i
Section 731 provides that a partner recognizes gain to the extent that the amount of any money distributed exceeds the adjusted basis of the partner's interest in the partnership. Sec. 731(a). Section 1.731-1(a), Income Tax Regs., provides that this rule is applicable to current distributions and distributions in liquidation of a partner's entire i
Respondent’s Alternative Argument — A Deemed Distribution and Recontribution of Partnership Property Under Section 731 Constitutes a “sale or exchange” Within the Meaning of Section 1056 Respondent alternatively argues that if we hold that a partnership is to be treated as an entity for purposes of applying section 1056, a sale or exchange of the partnership assets nevertheless occurred under the entity theory.
We refer to provisions of the Florida Probate Code as “Florida Probate Code § ___.” All provisions of the Florida Statutes (including provisions of the 8 [*8] The powers granted to a personal representative are specified by Florida Probate Code § 733.612(20), which provides that a “personal representative . . . may properly: . .
Second, a partner may receive payments in circumstances in which he or she is not treated as - 20 - [*20] a partner. Sec. 707(a). And third, a partner may receive guaranteed payments for services or use ofcapital that do not represent distributions of partnership income. Sec. 707(c). Specifically, section 707(c) provides: SEC. 707(c). Gu
ess partnership interest loss deductions for MTW-Houston, L.P., OFP-Hutson, Ltd., and Win-88, Ltd. 6A loss from worthlessness ofa partnership interest will be ordinary ifthere is neither an actual nor a deemed distribution to the partner pursuant to sec. 731, 741, or 752. See Citron v. Commissioner, 97 T.C. 200, 216 (1991). - 8 - [*8] F.3d 1241, 1251 (1 lth Cir. 2016), affg T.C. Memo. 2015-185. "[A] loss [relating to a worthless interest in a partnership] must be evidenced by closed and complete
ess partnership interest loss deductions for MTW-Houston, L.P., OFP-Hutson, Ltd., and Win-88, Ltd. 6A loss from worthlessness ofa partnership interest will be ordinary ifthere is neither an actual nor a deemed distribution to the partner pursuant to sec. 731, 741, or 752. See Citron v. Commissioner, 97 T.C. 200, 216 (1991). - 8 - [*8] F.3d 1241, 1251 (1 lth Cir. 2016), affg T.C. Memo. 2015-185. "[A] loss [relating to a worthless interest in a partnership] must be evidenced by closed and complete
Second, a partner may receive payments in circumstances where he or she is nottreated as a partner. Sec. 707(a). And third, a partner may receive guaranteed payments. Sec. 707(c). ¹°We note that petitioner contends that the payments were "capital expenditures" without further explanation or factual support. We interpret petitioner's argum
(Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the year in issue. All Rule references are to the Tax Court Rules ofPractice and Procedure.) 5 A digital option has only two possible outcomes at expiration: some fixed payoffamount, or else nothing. Digital options are typically also Europe
Second, a partner may receive payments in circumstances where he or she is nottreated as a partner. Sec. 707(a). And third, a partner may receive guaranteed payments. Sec. 707(c). ¹°We note that petitioner contends that the payments were "capital expenditures" without further explanation or factual support. We interpret petitioner's argum
Second, a partner may receive payments in circumstances where he or she is not treated as a partner. Sec. 707(a). And third, a partner may receive guaranteed payments for services or use ofcapital that do not represent distributions ofpartnership income. Sec. 707(c). Specifically, section 707(c) provides: SEC. 707(c). Guaranteed Payments.
The provision ofadditional basis to a partner for the partner's partnership interest will permit the partner to receive distributions of the proceeds ofpartnership liabilities without recognizing gain under section 731, and to take deductions attributable to partnership liabilities without limitation under section 704(d) (which limits the losses that a partner may claim to the basis ofthe partner's interest in the partnership).
The provision of additional basis to a partner for the partner’s partnership interest will permit the partner to receive distributions of the proceeds of partnership liabilities without recognizing gain under section 731, and to take deductions attributable to partnership liabilities without limitation under section 704(d) (which limits the losses that a partner may claim to the basis of the partner’s interest in the partnership).
Under section 721, they would recognize no gain on the transfer to the partnership; under section 731, there would be no tax on the partership’s reassigning the notes to them.
The provision of additional basis to a partner for the partner’s partnership interest will permit the partner to receive distributions of the proceeds of partnership liabilities without recognizing gain under section 731, and to take deductions attributable to partnership liabilities without limitation under section 704(d) (which limits the losses that a partner may claim to the basis of the partner’s interest in the partnership).
731.201(8) (West 1995). - 5 - The Trustee shall hold, manage, invest and reinvest the trust property (including any amounts which may be added thereto under the Last Will and Testament of the "Grantor"[)] and shall collect the income thereof and dispose of the net income and principal as follows: * * * * * * * B. Upon the death of the Grantor
731.201(25) (West 1995) defines "personal representative" as a court- appointed fiduciary who administers a decedent's estate. For purposes of the Florida Probate Code, the definition supersedes "executor" and other synonymous terms. Id. - 4 - B. Furman's, Inc. FIC is a Florida corporation that was organized in 1959. The principal place of bu
See Harris v. - 1100 - Commissioner, T.C. Memo. 1988-195; Lynch v. Commissioner, T.C. Memo. 1982-305; Abraham v. Commissioner, T.C. Memo. 1970-304. A partner's adjusted basis in his partnership interest is determined under section 705. A partner's initial basis in a partnership is determined by the amount of money contributed and the adj
Petitioners argue that the transaction should be treated as a sale by Pecaris of a 75-percent undivided interest in the Mall 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 por