§732 — Basis of distributed property other than money
64 cases·10 followed·3 distinguished·2 questioned·49 cited—16% support
Statute Text — 26 U.S.C. §732
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.
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.
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.
The basis of distributed properties to which subsection (a)(2) or (b) is applicable shall be allocated—
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
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
to the extent of any basis remaining after the allocation under subparagraph (A), to other distributed properties—
first by assigning to each such other property such other property’s adjusted basis to the partnership, and
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.
Any increase required under paragraph (1)(B) shall be allocated among the properties—
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
then, to the extent such increase is not allocated under subparagraph (A), in proportion to their respective fair market values.
Any decrease required under paragraph (1)(A) or (1)(B) shall be allocated—
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
then, to the extent such decrease is not allocated under subparagraph (A), in proportion to their respective adjusted bases (as adjusted under subparagraph (A)).
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.
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).
If—
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”),
the corporate partner has control of the distributed corporation immediately after the distribution or at any time thereafter, and
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).
Paragraph (1) shall not apply to any distribution of stock in the distributed corporation if—
the corporate partner does not have control of such corporation immediately after such distribution, and
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.
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.
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).
If 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—
such excess shall be recognized by the corporate partner as long-term capital gain, and
the corporate partner’s adjusted basis in the stock of the distributed corporation shall be increased by such excess.
For purposes of this subsection, the term “control” means ownership of stock meeting the requirements of section 1504(a)(2).
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.
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.
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.
Treasury Regulations
- Treas. Reg. §Treas. Reg. §1.732-1 Basis of distributed property other than money
- Treas. Reg. §Treas. Reg. §1.732-1(a) Distributions other than in liquidation of a partner's interest.
- Treas. Reg. §Treas. Reg. §1.732-1(b) Distribution in liquidation.
- Treas. Reg. §Treas. Reg. §1.732-1(c) Allocation of basis among properties distributed to a partner—(1) General rule—(i) Unrealized receivables and inventory items.
- Treas. Reg. §Treas. Reg. §1.732-1(d) Special partnership basis to transferee under section 732(d).
- Treas. Reg. §Treas. Reg. §1.732-1(e) Exception.
- Treas. Reg. §Treas. Reg. §1.732-1(i) The fair market value of all partnership property (other than money) exceeded 110 percent of its adjusted basis to the partnership.
- Treas. Reg. §Treas. Reg. §1.732-1(v) If property is distributed to a transferee partner who elects under section 732(d), and if such property is not the same property which would have had a special basis adjustment, then such special basis adjustment shall apply to any like property received in the distribution, provided that the transferee, in exchange for the property distributed, has relinquished his interest in the property with respect to which he would have had a special basis adjustment.
- Treas. Reg. §Treas. Reg. §1.732-2 Special partnership basis of distributed property
- Treas. Reg. §Treas. Reg. §1.732-2(a) Adjustments under section 734(b).
- Treas. Reg. §Treas. Reg. §1.732-2(b) Adjustments under section 743(b).
- Treas. Reg. §Treas. Reg. §1.732-2(c) Adjustments to basis of distributed inventory and unrealized receivables.
- Treas. Reg. §Treas. Reg. §1.732-3 Corresponding adjustment to basis of assets of a distributed corporation controlled by a corporate partner
- Treas. Reg. §Treas. Reg. §1.732-3(a) Determination of control.
- Treas. Reg. §Treas. Reg. §1.732-3(b) Aggregation of basis within consolidated group.
- Treas. Reg. §Treas. Reg. §1.732-3(c) Application of section 732(f) to Gain Elimination Transactions—(1) General rule.
- Treas. Reg. §Treas. Reg. §1.732-3(d) Tiered partnerships.
- Treas. Reg. §Treas. Reg. §1.732-3(e) Applicability date.
- Treas. Reg. §Treas. Reg. §1.732-3(i) Corporate Partner.
- Treas. Reg. §Treas. Reg. §1.732-3(v) Gain Elimination Transaction.
64 Citing Cases
Pursuant to section 732, RTV and RSV determined the adjusted bases in their Scient stock according to the adjusted bases in their interests in Petaluma immediately before the distribution .
Pursuant to section 732, RTV and RSV determined the adjusted bases in their Scient stock according to the adjusted bases in their interests in Petaluma immediately before the distribution.
Under section 732 the client members' supposed outside bases became bases in the distributed yen, which they then sold. But rather than calculate their gain or loss by subtracting the actual purchase price ofthe options from the actual sale price, they claimed that they could subtract the pretend bases for those options from the actual sale price. Thus,
Under section 732 the client members' supposed outside bases became bases in the distributed yen, which they then sold. But rather than calculate their gain or loss by subtracting the actual purchase price ofthe options from the actual sale price, they claimed that they could subtract the pretend bases for those options from the actual sale price. Thus,
Under section 732, Markell's supposed outside basis of$15 million (minus the cash received) became its basis 12(...continued) Reg. sec. 301.7701-3(b)(1)(ii), Proced. & Admin. Regs.; Med. Practice Solutions, LLC v. Commissioner, 132 T.C. 125 (2009) (holding the "check-the-box" regulations are valid), aff'd withoutpublished opinion sub nom. Britton v. Shul
uted property with a different basis, would require the partnership to account for the distributee partner's outside basis to ascertain the sec. 734(b) adjustment. S.ee generally sec. 731 (governing distributee partner's recognition ofgain or loss); sec. 732 (providing rules for determining distributee partner's basis in the distributed property); sec. 733 (specifying adjustments to distributee partner's outside basis). As with sec. 743(b) adjustments, basis adjustments under sec. 734(b) are now
732.514 provided that "The death ofthe testator is the event-that vests the right to devises unlèss the testator in his or her will has provided that some other event must happen before a devise shall vest."12 Fla. Stat. Ann. sec. 731.201(10) (West 2010) provides that the term "'Devise,' when used as a noun, meahs a testamentary disposition of
uted property with a different basis, would require the partnership to account for the distributee partner’s outside basis to ascertain the sec. 734(b) adjustment. See generally sec. 731 (governing distributee partner’s recognition of gain or loss); sec. 732 (providing rules for determining distributee partner’s basis in the distributed property); sec. 733 (specifying adjustments to distributee partner’s outside basis). As with sec. 743(b) adjustments, basis adjustments under sec. 734(b) are now
To reflect the above transactions, each entity filed a tax return: Holdings 1 filed a partnership return for its brief 1999 taxable year (September 20, 1999-November 15, 1999) on July 17, 2000. It listed the short sale of the U.S. Treasury notes and claimed sale proceeds of $9,938,281, a basis of $9,965,625, and a resulting loss of $27,34
To reflect the above transactions, each entity filed a tax return: Holdings 1 filed a partnership return for its brief 1999 taxable year (September 20, 1999-November 15, 1999) on July 17, 2000. It listed the short sale of the U.S. Treasury notes and claimed sale proceeds of $9,938,281, a basis of $9,965,625, and a resulting loss of $27,34
- 34 - (B) the basis to the distributee, as determined under section 732, of any unreal- ized receivables (as defined in section 751(c)) and inventory (as defined in section 751(d)).