{"identifier":"/us/usc/t26/s724","title":26,"num":"\u00a7\u202f724.","heading":"Character of gain or loss on contributed unrealized receivables, inventory items, and capital loss property","text":"\u00a7\u202f724.\nCharacter of gain or loss on contributed unrealized receivables, inventory items, and capital loss property\n(a)\nContributions of unrealized receivables\nIn the case of any property which\u2014\n(1) was contributed to the partnership by a partner, and\n(2) was an unrealized receivable in the hands of such partner immediately before such contribution,\nany gain or loss recognized by the partnership on the disposition of such property shall be treated as ordinary income or ordinary loss, as the case may be.\n(b)\nContributions of inventory items\nIn the case of any property which\u2014\n(1) was contributed to the partnership by a partner, and\n(2) was an inventory item in the hands of such partner immediately before such contribution,\nany gain or loss recognized by the partnership on the disposition of such property during the 5-year period beginning on the date of such contribution shall be treated as ordinary income or ordinary loss, as the case may be.\n(c)\nContributions of capital loss property\nIn the case of any property which\u2014\n(1) was contributed by a partner to the partnership, and\n(2) was a capital asset in the hands of such partner immediately before such contribution,\nany loss recognized by the partnership on the disposition of such property during the 5-year period beginning on the date of such contribution shall be treated as a loss from the sale of a capital asset to the extent that, immediately before such contribution, the adjusted basis of such property in the hands of the partner exceeded the fair market value of such property.\n(d)\nDefinitions\nFor purposes of this section\u2014\n(1)\nUnrealized receivable\nThe term \u201cunrealized receivable\u201d has the meaning given such term by section 751(c) (determined by treating any reference to the partnership as referring to the partner).\n(2)\nInventory item\nThe term \u201cinventory item\u201d has the meaning given such term by section 751(d) (determined by treating any reference to the partnership as referring to the partner and by applying section 1231 without regard to any holding period therein provided).\n(3)\nSubstituted basis property\n(A)\nIn general\nIf any property described in subsection (a), (b), or (c) is disposed of in a nonrecognition transaction, the tax treatment which applies to such property under such subsection shall also apply to any substituted basis property resulting from such transaction. A similar rule shall also apply in the case of a series of non-recognition transactions.\n(B)\nException for stock in C corporation\nSubparagraph (A) shall not apply to any stock in a C corporation received in an exchange described in section 351.","url":"https://projectusc.org/usc/t26/s724.html","content":[{"t":"sec","id":"/us/usc/t26/s724","children":[{"t":"num","text":"\u00a7\u202f724."},{"t":"heading","text":"Character of gain or loss on contributed unrealized receivables, inventory items, and capital loss property"},{"t":"subsec","id":"/us/usc/t26/s724/a","children":[{"t":"num","text":"(a)"},{"t":"heading","text":"Contributions of unrealized receivables"},{"t":"chapeau","text":"In the case of any property which\u2014"},{"t":"para","id":"/us/usc/t26/s724/a/1","children":[{"t":"num","text":"(1)"},{"t":"content","text":" was contributed to the partnership by a partner, and","tail":"\n"}],"tail":"\n"},{"t":"para","id":"/us/usc/t26/s724/a/2","children":[{"t":"num","text":"(2)"},{"t":"content","text":" was an unrealized receivable in the hands of such partner immediately before such contribution,","tail":"\n"}],"tail":"\n\n"},{"t":"continuation","text":"any gain or loss recognized by the partnership on the disposition of such property shall be treated as ordinary income or ordinary loss, as the case may be.","tail":"\n"}],"tail":"\n"},{"t":"subsec","id":"/us/usc/t26/s724/b","children":[{"t":"num","text":"(b)"},{"t":"heading","text":"Contributions of inventory items"},{"t":"chapeau","text":"In the case of any property which\u2014"},{"t":"para","id":"/us/usc/t26/s724/b/1","children":[{"t":"num","text":"(1)"},{"t":"content","text":" was contributed to the partnership by a partner, and","tail":"\n"}],"tail":"\n"},{"t":"para","id":"/us/usc/t26/s724/b/2","children":[{"t":"num","text":"(2)"},{"t":"content","text":" was an inventory item in the hands of such partner immediately before such contribution,","tail":"\n"}],"tail":"\n\n"},{"t":"continuation","text":"any gain or loss recognized by the partnership on the disposition of such property during the 5-year period beginning on the date of such contribution shall be treated as ordinary income or ordinary loss, as the case may be.","tail":"\n"}],"tail":"\n"},{"t":"subsec","id":"/us/usc/t26/s724/c","children":[{"t":"num","text":"(c)"},{"t":"heading","text":"Contributions of capital loss property"},{"t":"chapeau","text":"In the case of any property which\u2014"},{"t":"para","id":"/us/usc/t26/s724/c/1","children":[{"t":"num","text":"(1)"},{"t":"content","text":" was contributed by a partner to the partnership, and","tail":"\n"}],"tail":"\n"},{"t":"para","id":"/us/usc/t26/s724/c/2","children":[{"t":"num","text":"(2)"},{"t":"content","text":" was a capital asset in the hands of such partner immediately before such contribution,","tail":"\n"}],"tail":"\n\n"},{"t":"continuation","text":"any loss recognized by the partnership on the disposition of such property during the 5-year period beginning on the date of such contribution shall be treated as a loss from the sale of a capital asset to the extent that, immediately before such contribution, the adjusted basis of such property in the hands of the partner exceeded the fair market value of such property.","tail":"\n"}],"tail":"\n"},{"t":"subsec","id":"/us/usc/t26/s724/d","children":[{"t":"num","text":"(d)"},{"t":"heading","text":"Definitions"},{"t":"chapeau","text":"For purposes of this section\u2014"},{"t":"para","id":"/us/usc/t26/s724/d/1","children":[{"t":"num","text":"(1)"},{"t":"heading","text":"Unrealized receivable"},{"t":"content","children":[{"t":"p","text":"The term \u201cunrealized receivable\u201d has the meaning given such term by section 751(c) (determined by treating any reference to the partnership as referring to the partner).","tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"para","id":"/us/usc/t26/s724/d/2","children":[{"t":"num","text":"(2)"},{"t":"heading","text":"Inventory item"},{"t":"content","children":[{"t":"p","text":"The term \u201cinventory item\u201d has the meaning given such term by section 751(d) (determined by treating any reference to the partnership as referring to the partner and by applying section 1231 without regard to any holding period therein provided).","tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"para","id":"/us/usc/t26/s724/d/3","children":[{"t":"num","text":"(3)"},{"t":"heading","text":"Substituted basis property"},{"t":"subpara","id":"/us/usc/t26/s724/d/3/A","children":[{"t":"num","text":"(A)"},{"t":"heading","text":"In general"},{"t":"content","children":[{"t":"p","text":"If any property described in subsection (a), (b), or (c) is disposed of in a nonrecognition transaction, the tax treatment which applies to such property under such subsection shall also apply to any substituted basis property resulting from such transaction. A similar rule shall also apply in the case of a series of non-recognition transactions.","tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"subpara","id":"/us/usc/t26/s724/d/3/B","children":[{"t":"num","text":"(B)"},{"t":"heading","text":"Exception for stock in C corporation"},{"t":"content","children":[{"t":"p","text":"Subparagraph (A) shall not apply to any stock in a C corporation received in an exchange described in section 351.","tail":"\n"}],"tail":"\n"}],"tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"text","text":"\n"},{"t":"text","text":"\n"}]}]}