republic-os/legal/us/code/title-26/chapter-1/section-737.md

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LegalText	26 U.S.C. § 737	Recognition of precontribution gain in case of certain distributions to contributing partner	us	united_states_code	code_section	26	INTERNAL REVENUE CODE	1	NORMAL TAXES AND SURTAXES	737	26 U.S.C. § 737	current	119-100	2026-06-26	official	https://uscode.house.gov/download/releasepoints/us/pl/119/100/xml_usc26@119-100.zip	/us/usc/t26/s737	data/legal/raw/us/code/title-26/usc26.xml	3c39bd83a2f2ce9a0ee90268a59227c11124b17566ecb1bb296744f7be38bbe7	a261f094809116f42a96648a3d5eee80fa010379d67412551c21dd5c900b27f4	cf4a8b601f8d0f4f60bf9de0e88f3f2a5e4c1b067c044e7450a5ba0d6ece7db9	2026-07-04	official	legal us-code

26 U.S.C. § 737 - Recognition of precontribution gain in case of certain distributions to contributing partner

Text

(a) General rule In the case of any distribution by a partnership to a partner, such partner shall be treated as recognizing gain in an amount equal to the lesser of—

(1) the excess (if any) of (A) the fair market value of property (other than money) received in the distribution over (B) the adjusted basis of such partner’s interest in the partnership immediately before the distribution reduced (but not below zero) by the amount of money received in the distribution, or

(2) the net precontribution gain of the partner.

Gain recognized under the preceding sentence shall be in addition to any gain recognized under section 731. The character of such gain shall be determined by reference to the proportionate character of the net precontribution gain.

(b) Net precontribution gain For purposes of this section, the term “net precontribution gain” means the net gain (if any) which would have been recognized by the distributee partner under section 704(c)(1)(B) if all property which—

(1) had been contributed to the partnership by the distributee partner within 7 years of the distribution, and

(2) is held by such partnership immediately before the distribution,

had been distributed by such partnership to another partner.

(c) Basis rules (1) Partner’s interest The adjusted basis of a partner’s interest in a partnership shall be increased by the amount of any gain recognized by such partner under subsection (a). For purposes of determining the basis of the distributed property (other than money), such increase shall be treated as occurring immediately before the distribution.

(2) Partnership’s basis in contributed property Appropriate adjustments shall be made to the adjusted basis of the partnership in the contributed property referred to in subsection (b) to reflect gain recognized under subsection (a).

(d) Exceptions (1) Distributions of previously contributed property If any portion of the property distributed consists of property which had been contributed by the distributee partner to the partnership, such property shall not be taken into account under subsection (a)(1) and shall not be taken into account in determining the amount of the net precontribution gain. If the property distributed consists of an interest in an entity, the preceding sentence shall not apply to the extent that the value of such interest is attributable to property contributed to such entity after such interest had been contributed to the partnership.

(2) Coordination with section 751 This section shall not apply to the extent section 751(b) applies to such distribution.

(e) Marketable securities treated as money For treatment of marketable securities as money for purposes of this section, see section 731(c).

(Added Pub. L. 102–486, title XIX, § 1937(a), Oct. 24, 1992, 106 Stat. 3032; amended Pub. L. 103–465, title VII, § 741(b), Dec. 8, 1994, 108 Stat. 5009; Pub. L. 104–188, title I, § 1704(j)(8), Aug. 20, 1996, 110 Stat. 1882; Pub. L. 105–34, title X, § 1063(a), Aug. 5, 1997, 111 Stat. 947.)

Notes

Editorial Notes

Amendments1997—Subsec. (b)(1). Pub. L. 105–34 substituted “7 years” for “5 years”. 1996—Pub. L. 104–188 provided that section 1937(a) of Pub. L. 102–486, shall be applied as if “Subpart B” appeared instead of “Subpart C”. Section 1937(a) of Pub. L. 102–486 directed amendment of subpart C of this part by adding this section at the end thereof. 1994—Subsec. (c)(1). Pub. L. 103–465, § 741(b)(1), amended last sentence generally. Prior to amendment, last sentence read as follows: “Except for purposes of determining the amount recognized under subsection (a), such increase shall be treated as occurring immediately before the distribution.” Subsec. (e). Pub. L. 103–465, § 741(b)(2), added subsec. (e).

Statutory Notes and Related Subsidiaries

Effective Date of 1997 AmendmentAmendment by Pub. L. 105–34 applicable to property contributed to a partnership after June 8, 1997, but not applicable to any property contributed pursuant to a written binding contract in effect on June 8, 1997, and at all times thereafter before such contribution if such contract provides for the contribution of a fixed amount of property, see section 1063(b) of Pub. L. 105–34, set out as a note under section 704 of this title.

Effective Date of 1994 AmendmentAmendment by Pub. L. 103–465 applicable to distributions after Dec. 8, 1994, and not applicable to certain distributions before Jan. 1, 1995, distributions in liquidation of partner’s interest, or distributions in complete liquidation of publicly traded partnerships, see section 741(c) of Pub. L. 103–465, set out as a note under section 731 of this title.

Effective DateSection applicable to distributions on or after June 25, 1992, see section 1937(c) of Pub. L. 102–486, set out as an Effective Date of 1992 Amendment note under section 704 of this title.