§732 — Basis of distributed property other than money
38 citing cases
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
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Treas. Reg. §1.732-1Basis of distributed property other than money
(a) Distributions other than in liquidation of a partner's interest. The basis of property (other than money) received by a partner in a distribution from a partnership, other than in liquidation of his entire interest, shall be its adjusted basis to the partnership immediately before such distribution. However, the basis of the property to the partner shall not exceed the adjusted basis of the partner's interest in the partnership, reduced by the amount of any money distributed to him in the same transaction. The provisions of this paragraph may be illustrated by the following examples:
(b) Distribution in liquidation. Where a partnership distributes property (other than money) in liquidation of a partner's entire interest in the partnership, the basis of such property to the partner shall be an amount equal to the adjusted basis of his interest in the partnership reduced by the amount of any money distributed to him in the same transaction. Application of this rule may be illustrated by the following example:
(c) Allocation of basis among properties distributed to a partner—(1) General rule—(i) Unrealized receivables and inventory items. Except as provided in paragraph (c)(1)(iii) of this section, the basis to be allocated to properties distributed to a partner under section 732(a)(2) or (b) is allocated first to any unrealized receivables (as defined in section 751(c)) and inventory items (as defined in section 751(d)(2)) in an amount equal to the adjusted basis of each such property to the partnership immediately before the distribution. If the basis to be allocated is less than the sum of the adjusted bases to the partnership of the distributed unrealized receivables and inventory items, the adjusted basis of the distributed property must be decreased in the manner provided in § 1.732-1(c)(2)(i). See § 1.460-4(k)(2)(iv)(D) for a rule determining the partnership's basis in long-term contract accounted for under a long-term contract method of accounting.
(ii) Other distributed property. Any basis not allocated to unrealized receivables or inventory items under paragraph (c)(1)(i) of this section or to stock of persons that control the corporate partner or to the corporate partner's stock under paragraph (c)(1)(iii) of this section is allocated to any other property distributed to the partner in the same transaction by assigning to each distributed property an amount equal to the adjusted basis of the property to the partnership immediately before the distribution. However, if the sum of the adjusted bases to the partnership of such other distributed property does not equal the basis to be allocated among the distributed property, any increase or decrease required to make the amounts equal is allocated among the distributed property as provided in § 1.732-1(c)(2).
(iii) Stock distributed to the corporate partner. If a partnership makes a distribution described in § 1.337(d)-3(e)(1), then for purposes of this section, the basis to be allocated to properties distributed under section 732(a)(2) or (b) is allocated first to the Stock of the Corporate Partner, as defined in § 1.337(d)-3(c)(2), before the distribution of any other property (other than cash). The amount allocated to the Stock of the Corporate Partner is as provided in § 1.337(d)-3(e)(2).
(2) Adjustment to basis allocation—(i) Decrease in basis. Any decrease to the basis of distributed property required under paragraph (c)(1) of this section is allocated first to distributed property with unrealized depreciation in proportion to each property's respective amount of unrealized depreciation before any decrease (but only to the extent of each property's unrealized depreciation). If the required decrease exceeds the amount of unrealized depreciation in the distributed property, the excess is allocated to the distributed property in proportion to the adjusted bases of the distributed property, as adjusted pursuant to the immediately preceding sentence.
(ii) Increase in basis. Any increase to the basis of distributed property required under paragraph (c)(1)(ii) of this section is allocated first to distributed property (other than unrealized receivables and inventory items) with unrealized appreciation in proportion to each property's respective amount of unrealized appreciation before any increase (but only to the extent of each property's unrealized appreciation). If the required increase exceeds the amount of unrealized appreciation in the distributed property, the excess is allocated to the distributed property (other than unrealized receivables or inventory items) in proportion to the fair market value of the distributed property.
(3) Unrealized receivables and inventory items. If the basis to be allocated upon a distribution in liquidation of the partner's entire interest in the partnership is greater than the adjusted basis to the partnership of the unrealized receivables and inventory items distributed to the partner, and if there is no other property distributed to which the excess can be allocated, the distributee partner sustains a capital loss under section 731(a)(2) to the extent of the unallocated basis of the partnership interest.
(4) Examples. The provisions of this paragraph (c) are illustrated by the following examples:
(5) Effective/applicability date—(i) In general. This paragraph (c) applies to distributions of property from a partnership that occur on or after December 15, 1999.
(ii) Exception. Notwithstanding paragraph (c)(5)(i) of this section, the first sentence of each of paragraphs (c)(1)(i) and (ii) of this section, and paragraph (c)(1)(iii) of this section in its entirety, apply to distributions of Stock of the Corporate Partner, as defined in § 1.337(d)-3(c)(2), that occur on or after June 12, 2015.
(d) Special partnership basis to transferee under section 732(d). (1)(i) A transfer of a partnership interest occurs upon a sale or exchange of an interest or upon the death of a partner. Section 732(d) provides a special rule for the determination of the basis of property distributed to a transferee partner who acquired any part of his partnership interest in a transfer with respect to which the election under section 754 (relating to the optional adjustment to basis of partnership property) was not in effect.
(ii) Where an election under section 754 is in effect, see section 743(b) and §§ 1.743-1 and 1.732-2.
(iii) If a transferee partner receives a distribution of property (other than money) from the partnership within 2 years after he acquired his interest or part thereof in the partnership by a transfer with respect to which the election under section 754 was not in effect, he may elect 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.
(iv) If an election under section 732(d) is made upon a distribution of property to a transferee partner, the amount of the adjustment with respect to the transferee partner is not diminished by any depletion or depreciation of that portion of the basis of partnership property which arises from the special basis adjustment under section 732(d), since depletion or depreciation on such portion for the period prior to distribution is allowed or allowable only if the optional adjustment under section 743(b) is in effect.
(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. This rule applies whether the property in which the transferee has relinquished his interest is retained or disposed or by the partnership. (For a shift of transferee's basis adjustment under section 743(b) to like property, see § 1.743-1(g).)
(vi) The provisions of this paragraph (d)(1) may be illustrated by the following example:
(2) A transferee partner who wishes to elect under section 732(d) shall make the election with his tax return:
(i) For the year of the distribution, if the distribution includes any property subject to the allowance for depreciation, depletion, or amortization, or
(ii) For any taxable year no later than the first taxable year in which the basis of any of the distributed property is pertinent in determining his income tax, if the distribution does not include any such property subject to the allowance for depreciation, depletion or amortization.
(3) A taxpayer making an election under section 732(d) shall submit with the return in which the election is made a schedule setting forth the following:
(i) That under section 732(d) he elects to adjust the basis of property received in a distribution; and
(ii) The computation of the special basis adjustment for the property distributed and the properties to which the adjustment has been allocated. For rules of allocation, see section 755.
(4) A partner who acquired any part of his partnership interest in a transfer to which the election provided in section 754 was not in effect, is required to apply the special basis rule contained in section 732(d) to a distribution to him, whether or not made within 2 years after the transfer, if at the time of his acquisition of the transferred interest:
(i) The fair market value of all partnership property (other than money) exceeded 110 percent of its adjusted basis to the partnership.
(ii) An allocation of basis under section 732(c) upon a liquidation of his interest immediately after the transfer of the interest would have resulted in a shift of basis from property not subject to an allowance for depreciation, depletion, or amortization, to property subject to such an allowance, and
(iii) A basis adjustment under section 743(b) would change the basis to the transferee partner of the property actually distributed.
(5) Required statements. If a transferee partner notifies a partnership that it plans to make the election under section 732(d) under paragraph (d)(3) of this section, or if a partnership makes a distribution to which paragraph (d)(4) of this section applies, the partnership must provide the transferee with such information as is necessary for the transferee properly to compute the transferee's basis adjustments under section 732(d).
(e) Exception. When a partnership distributes unrealized receivables (as defined in section 751(c)) or substantially appreciated inventory items (as defined in section 751(d)) in exchange for any part of a partner's interest in other partnership property (including money), or, conversely, partnership property (including money) other than unrealized receivables or substantially appreciated inventory items in exchange for any part of a partner's interest in the partnership's unrealized receivables or substantially appreciated inventory items, the distribution will be treated as a sale or exchange of property under the provisions of section 751(b). In such case, section 732 (including subsection(d) thereof) applies in determining the partner's basis of the property which he is treated as having sold to or exchanged with the partnership (as constituted after the distribution). The partner is considered as having received such property in a current distribution and, immediately thereafter, as having sold or exchanged it. See section 751(b) and paragraph (b) of § 1.751-1. However, section 732 does not apply in determining the basis of that part of property actually distributed to a partner which is treated as received by him in a sale or exchange under section 751(b). Consequently, the basis of such property shall be its cost to the partner.
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Treas. Reg. §1.732-1(a)Distributions other than in liquidation of a partner's interest.
Distributions other than in liquidation of a partner's interest. The basis of property (other than money) received by a partner in a distribution from a partnership, other than in liquidation of his entire interest, shall be its adjusted basis to the partnership immediately before such distribution. However, the basis of the property to the partner shall not exceed the adjusted basis of the partner's interest in the partnership, reduced by the amount of any money distributed to him in the same transaction. The provisions of this paragraph may be illustrated by the following examples:
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Treas. Reg. §1.732-1(b)Distribution in liquidation.
Distribution in liquidation. Where a partnership distributes property (other than money) in liquidation of a partner's entire interest in the partnership, the basis of such property to the partner shall be an amount equal to the adjusted basis of his interest in the partnership reduced by the amount of any money distributed to him in the same transaction. Application of this rule may be illustrated by the following example:
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Treas. Reg. §1.732-1(c)Allocation of basis among properties distributed to a partner—(1) General rule—(i) Unrealized receivables and inventory items.
Allocation of basis among properties distributed to a partner—(1) General rule—(i) Unrealized receivables and inventory items. Except as provided in paragraph (c)(1)(iii) of this section, the basis to be allocated to properties distributed to a partner under section 732(a)(2) or (b) is allocated first to any unrealized receivables (as defined in section 751(c)) and inventory items (as defined in section 751(d)(2)) in an amount equal to the adjusted basis of each such property to the partnership immediately before the distribution. If the basis to be allocated is less than the sum of the adjusted bases to the partnership of the distributed unrealized receivables and inventory items, the adjusted basis of the distributed property must be decreased in the manner provided in § 1.732-1(c)(2)(i). See § 1.460-4(k)(2)(iv)(D) for a rule determining the partnership's basis in long-term contract accounted for under a long-term contract method of accounting.
(ii) Other distributed property. Any basis not allocated to unrealized receivables or inventory items under paragraph (c)(1)(i) of this section or to stock of persons that control the corporate partner or to the corporate partner's stock under paragraph (c)(1)(iii) of this section is allocated to any other property distributed to the partner in the same transaction by assigning to each distributed property an amount equal to the adjusted basis of the property to the partnership immediately before the distribution. However, if the sum of the adjusted bases to the partnership of such other distributed property does not equal the basis to be allocated among the distributed property, any increase or decrease required to make the amounts equal is allocated among the distributed property as provided in § 1.732-1(c)(2).
(iii) Stock distributed to the corporate partner. If a partnership makes a distribution described in § 1.337(d)-3(e)(1), then for purposes of this section, the basis to be allocated to properties distributed under section 732(a)(2) or (b) is allocated first to the Stock of the Corporate Partner, as defined in § 1.337(d)-3(c)(2), before the distribution of any other property (other than cash). The amount allocated to the Stock of the Corporate Partner is as provided in § 1.337(d)-3(e)(2).
(2) Adjustment to basis allocation—(i) Decrease in basis. Any decrease to the basis of distributed property required under paragraph (c)(1) of this section is allocated first to distributed property with unrealized depreciation in proportion to each property's respective amount of unrealized depreciation before any decrease (but only to the extent of each property's unrealized depreciation). If the required decrease exceeds the amount of unrealized depreciation in the distributed property, the excess is allocated to the distributed property in proportion to the adjusted bases of the distributed property, as adjusted pursuant to the immediately preceding sentence.
(ii) Increase in basis. Any increase to the basis of distributed property required under paragraph (c)(1)(ii) of this section is allocated first to distributed property (other than unrealized receivables and inventory items) with unrealized appreciation in proportion to each property's respective amount of unrealized appreciation before any increase (but only to the extent of each property's unrealized appreciation). If the required increase exceeds the amount of unrealized appreciation in the distributed property, the excess is allocated to the distributed property (other than unrealized receivables or inventory items) in proportion to the fair market value of the distributed property.
(3) Unrealized receivables and inventory items. If the basis to be allocated upon a distribution in liquidation of the partner's entire interest in the partnership is greater than the adjusted basis to the partnership of the unrealized receivables and inventory items distributed to the partner, and if there is no other property distributed to which the excess can be allocated, the distributee partner sustains a capital loss under section 731(a)(2) to the extent of the unallocated basis of the partnership interest.
(4) Examples. The provisions of this paragraph (c) are illustrated by the following examples:
(5) Effective/applicability date—(i) In general. This paragraph (c) applies to distributions of property from a partnership that occur on or after December 15, 1999.
(ii) Exception. Notwithstanding paragraph (c)(5)(i) of this section, the first sentence of each of paragraphs (c)(1)(i) and (ii) of this section, and paragraph (c)(1)(iii) of this section in its entirety, apply to distributions of Stock of the Corporate Partner, as defined in § 1.337(d)-3(c)(2), that occur on or after June 12, 2015.
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Treas. Reg. §1.732-1(d)Special partnership basis to transferee under section 732(d).
Special partnership basis to transferee under section 732(d). (1)(i) A transfer of a partnership interest occurs upon a sale or exchange of an interest or upon the death of a partner. Section 732(d) provides a special rule for the determination of the basis of property distributed to a transferee partner who acquired any part of his partnership interest in a transfer with respect to which the election under section 754 (relating to the optional adjustment to basis of partnership property) was not in effect.
(ii) Where an election under section 754 is in effect, see section 743(b) and §§ 1.743-1 and 1.732-2.
(iii) If a transferee partner receives a distribution of property (other than money) from the partnership within 2 years after he acquired his interest or part thereof in the partnership by a transfer with respect to which the election under section 754 was not in effect, he may elect 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.
(iv) If an election under section 732(d) is made upon a distribution of property to a transferee partner, the amount of the adjustment with respect to the transferee partner is not diminished by any depletion or depreciation of that portion of the basis of partnership property which arises from the special basis adjustment under section 732(d), since depletion or depreciation on such portion for the period prior to distribution is allowed or allowable only if the optional adjustment under section 743(b) is in effect.
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Treas. Reg. §1.732-1(e)Exception.
Exception. When a partnership distributes unrealized receivables (as defined in section 751(c)) or substantially appreciated inventory items (as defined in section 751(d)) in exchange for any part of a partner's interest in other partnership property (including money), or, conversely, partnership property (including money) other than unrealized receivables or substantially appreciated inventory items in exchange for any part of a partner's interest in the partnership's unrealized receivables or substantially appreciated inventory items, the distribution will be treated as a sale or exchange of property under the provisions of section 751(b). In such case, section 732 (including subsection(d) thereof) applies in determining the partner's basis of the property which he is treated as having sold to or exchanged with the partnership (as constituted after the distribution). The partner is considered as having received such property in a current distribution and, immediately thereafter, as having sold or exchanged it. See section 751(b) and paragraph (b) of § 1.751-1. However, section 732 does not apply in determining the basis of that part of property actually distributed to a partner which is treated as received by him in a sale or exchange under section 751(b). Consequently, the basis of such property shall be its cost to the partner.
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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.
The fair market value of all partnership property (other than money) exceeded 110 percent of its adjusted basis to the partnership.
(ii) An allocation of basis under section 732(c) upon a liquidation of his interest immediately after the transfer of the interest would have resulted in a shift of basis from property not subject to an allowance for depreciation, depletion, or amortization, to property subject to such an allowance, and
(iii) A basis adjustment under section 743(b) would change the basis to the transferee partner of the property actually distributed.
(5) Required statements. If a transferee partner notifies a partnership that it plans to make the election under section 732(d) under paragraph (d)(3) of this section, or if a partnership makes a distribution to which paragraph (d)(4) of this section applies, the partnership must provide the transferee with such information as is necessary for the transferee properly to compute the transferee's basis adjustments under section 732(d).
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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.
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. This rule applies whether the property in which the transferee has relinquished his interest is retained or disposed or by the partnership. (For a shift of transferee's basis adjustment under section 743(b) to like property, see § 1.743-1(g).)
(vi) The provisions of this paragraph (d)(1) may be illustrated by the following example:
(2) A transferee partner who wishes to elect under section 732(d) shall make the election with his tax return:
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Treas. Reg. §1.732-2Special partnership basis of distributed property
(a) Adjustments under section 734(b). In the case of a distribution of property to a partner, the partnership bases of the distributed properties shall reflect any increases or decreases to the basis of partnership property which have been made previously under section 734(b) (relating to the optional adjustment to basis of undistributed partnership property) in connection with previous distributions.
(b) Adjustments under section 743(b). In the case of a distribution of property to a partner who acquired any part of his interest in a transfer as to which an election under section 754 was in effect, then, for the purposes of section 732 (other than subsection (d) thereof), the adjusted partnership bases of the distributed property shall take into account, in addition to any adjustments under section 734(b), the transferee's special basis adjustment for the distributed property under section 743(b). The application of this paragraph may be illustrated by the following example:
(c) Adjustments to basis of distributed inventory and unrealized receivables. Under section 732, the basis to be allocated to distributed properties shall be allocated first to any unrealized receivables and inventory items. If the distributee partner is a transferee of a partnership interest and has a special basis adjustment for unrealized receivables or inventory items under either section 743(b) or section 732(d), then the partnership adjusted basis immediately prior to distribution of any unrealized receivables or inventory items distributed to such partner shall be determined as follows: If the distributee partner receives his entire share of the fair market value of the inventory items or unrealized receivables of the partnership, the adjusted basis of such distributed property to the partnership, for the purposes of section 732, shall take into account the entire amount of any special basis adjustment which the distributee partner may have for such assets. If the distributee partner receives less than his entire share of the fair market value of partnership inventory items or unrealized receivables, then, for purposes of section 732, the adjusted basis of such distributed property to the partnership shall take into account the same proportion of the distributee's special basis adjustment for unrealized receivables or inventory items as the value of such items distributed to him bears to his entire share of the total value of all such items of the partnership. The provisions of this paragraph may be illustrated by the following example:
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Treas. Reg. §1.732-2(a)Adjustments under section 734(b).
Adjustments under section 734(b). In the case of a distribution of property to a partner, the partnership bases of the distributed properties shall reflect any increases or decreases to the basis of partnership property which have been made previously under section 734(b) (relating to the optional adjustment to basis of undistributed partnership property) in connection with previous distributions.
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Treas. Reg. §1.732-2(b)Adjustments under section 743(b).
Adjustments under section 743(b). In the case of a distribution of property to a partner who acquired any part of his interest in a transfer as to which an election under section 754 was in effect, then, for the purposes of section 732 (other than subsection (d) thereof), the adjusted partnership bases of the distributed property shall take into account, in addition to any adjustments under section 734(b), the transferee's special basis adjustment for the distributed property under section 743(b). The application of this paragraph may be illustrated by the following example:
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Treas. Reg. §1.732-2(c)Adjustments to basis of distributed inventory and unrealized receivables.
Adjustments to basis of distributed inventory and unrealized receivables. Under section 732, the basis to be allocated to distributed properties shall be allocated first to any unrealized receivables and inventory items. If the distributee partner is a transferee of a partnership interest and has a special basis adjustment for unrealized receivables or inventory items under either section 743(b) or section 732(d), then the partnership adjusted basis immediately prior to distribution of any unrealized receivables or inventory items distributed to such partner shall be determined as follows: If the distributee partner receives his entire share of the fair market value of the inventory items or unrealized receivables of the partnership, the adjusted basis of such distributed property to the partnership, for the purposes of section 732, shall take into account the entire amount of any special basis adjustment which the distributee partner may have for such assets. If the distributee partner receives less than his entire share of the fair market value of partnership inventory items or unrealized receivables, then, for purposes of section 732, the adjusted basis of such distributed property to the partnership shall take into account the same proportion of the distributee's special basis adjustment for unrealized receivables or inventory items as the value of such items distributed to him bears to his entire share of the total value of all such items of the partnership. The provisions of this paragraph may be illustrated by the following example:
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Treas. Reg. §1.732-3Corresponding adjustment to basis of assets of a distributed corporation controlled by a corporate partner
(a) Determination of control. The determination of whether a corporate partner that is a member of a consolidated group has control of a distributed corporation for purposes of section 732(f) shall be made by applying the special aggregate stock ownership rules of § 1.1502-34.
(b) Aggregation of basis within consolidated group. With respect to distributed stock of a corporation, if the following two conditions are met, then section 732(f) shall apply only to the extent that the partnership's adjusted basis in the distributed stock immediately before the distribution exceeds the aggregate basis of the distributed stock of the corporation in the hands of corporate partners that are members of the same consolidated group (as defined in § 1.1502-1(h)) immediately after the distribution:
(1) Two or more of the corporate partners receive a distribution of stock in another corporation; and
(2) The corporation, the stock of which was distributed by the partnership, is or becomes a member of the distributee partners' consolidated group following the distribution.
(c) Application of section 732(f) to Gain Elimination Transactions—(1) General rule. In the event of a Gain Elimination Transaction, section 732(f) shall apply as though the Corporate Partner acquired control (as defined in section 732(f)(5)) of the Distributed Corporation immediately before the Gain Elimination Transaction.
(2) Definitions. The following definitions apply for purposes of this paragraph (c):
(i) Corporate Partner. The term Corporate Partner means a person that is classified as a corporation for federal income tax purposes and that holds or acquires an interest in a partnership.
(ii) Stock. The term Stock includes other equity interests, including options, warrants, and similar interests.
(iii) Distributed Stock. The term Distributed Stock means Stock distributed by a partnership to a Corporate Partner, or Stock the basis of which is determined by reference to the basis of such Stock. Distributed Stock also includes Stock owned directly or indirectly by a Distributed Corporation if the basis of such Stock has been reduced pursuant to section 732(f).
(iv) Distributed Corporation. The term Distributed Corporation means the issuer of Distributed Stock (or, in the case of an option, the issuer of the Stock into which the option is exercisable).
(v) Gain Elimination Transaction. The term Gain Elimination Transaction means a transaction in which Distributed Stock is disposed of and less than all of the gain is recognized unless—
(A) The transferor of the Distributed Stock receives in exchange Stock or a partnership interest that is exchanged basis property (as defined in section 7701(a)(44)) with respect to the Distributed Stock; or
(B) A transferee corporation holds the Distributed Stock as transferred basis property (as defined in section 7701(a)(43)) with respect to the transferor corporation's gain. A Gain Elimination Transaction includes (without limitation) a reorganization under section 368(a) in which the Corporate Partner and the Distributed Corporation combine, and a distribution of the Distributed Stock by the Corporate Partner to which section 355(c)(1) or 361(c)(1) applies.
(d) Tiered partnerships. The rules of this section shall apply to tiered partnerships in a manner that is consistent with the purposes of section 732(f).
(e) Applicability date. This section applies to transactions occurring on or after June 8, 2018.
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Treas. Reg. §1.732-3(a)Determination of control.
Determination of control. The determination of whether a corporate partner that is a member of a consolidated group has control of a distributed corporation for purposes of section 732(f) shall be made by applying the special aggregate stock ownership rules of § 1.1502-34.
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Treas. Reg. §1.732-3(b)Aggregation of basis within consolidated group.
Aggregation of basis within consolidated group. With respect to distributed stock of a corporation, if the following two conditions are met, then section 732(f) shall apply only to the extent that the partnership's adjusted basis in the distributed stock immediately before the distribution exceeds the aggregate basis of the distributed stock of the corporation in the hands of corporate partners that are members of the same consolidated group (as defined in § 1.1502-1(h)) immediately after the distribution:
(1) Two or more of the corporate partners receive a distribution of stock in another corporation; and
(2) The corporation, the stock of which was distributed by the partnership, is or becomes a member of the distributee partners' consolidated group following the distribution.
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Treas. Reg. §1.732-3(c)Application of section 732(f) to Gain Elimination Transactions—(1) General rule.
Application of section 732(f) to Gain Elimination Transactions—(1) General rule. In the event of a Gain Elimination Transaction, section 732(f) shall apply as though the Corporate Partner acquired control (as defined in section 732(f)(5)) of the Distributed Corporation immediately before the Gain Elimination Transaction.
(2) Definitions. The following definitions apply for purposes of this paragraph (c):
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Treas. Reg. §1.732-3(d)Tiered partnerships.
Tiered partnerships. The rules of this section shall apply to tiered partnerships in a manner that is consistent with the purposes of section 732(f).
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Treas. Reg. §1.732-3(e)Applicability date.
Applicability date. This section applies to transactions occurring on or after June 8, 2018.
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Treas. Reg. §1.732-3(i)Corporate Partner.
Corporate Partner. The term Corporate Partner means a person that is classified as a corporation for federal income tax purposes and that holds or acquires an interest in a partnership.
(ii) Stock. The term Stock includes other equity interests, including options, warrants, and similar interests.
(iii) Distributed Stock. The term Distributed Stock means Stock distributed by a partnership to a Corporate Partner, or Stock the basis of which is determined by reference to the basis of such Stock. Distributed Stock also includes Stock owned directly or indirectly by a Distributed Corporation if the basis of such Stock has been reduced pursuant to section 732(f).
(iv) Distributed Corporation. The term Distributed Corporation means the issuer of Distributed Stock (or, in the case of an option, the issuer of the Stock into which the option is exercisable).
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Treas. Reg. §1.732-3(v)Gain Elimination Transaction.
Gain Elimination Transaction. The term Gain Elimination Transaction means a transaction in which Distributed Stock is disposed of and less than all of the gain is recognized unless—
(A) The transferor of the Distributed Stock receives in exchange Stock or a partnership interest that is exchanged basis property (as defined in section 7701(a)(44)) with respect to the Distributed Stock; or
(B) A transferee corporation holds the Distributed Stock as transferred basis property (as defined in section 7701(a)(43)) with respect to the transferor corporation's gain. A Gain Elimination Transaction includes (without limitation) a reorganization under section 368(a) in which the Corporate Partner and the Distributed Corporation combine, and a distribution of the Distributed Stock by the Corporate Partner to which section 355(c)(1) or 361(c)(1) applies.
38 Citing Cases
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
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.
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)).