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INTERNAL REVENUE CODE OF 1954
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. (b) PARTNERSHIPS.—No gain or loss shall be recognized to a partnership on a distribution to a partner of property, including money. (c) EXCEPTIONS.—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) and section 751 (relating to unrealized receivables and inventory items). SEC. 732. BASIS OF DISTRIBUTED PROPERTY OTHER THAN MONEY. (a) DISTRIBUTIONS OTHER T H A N I N LIQUIDATION OF A P A R T N E R ' S INTEREST.— (1) GENERAL RULE. — 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. (2) LIMITATION.—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. (b) DISTRIBUTIONS IN LIQUIDATION.^—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. (c) ALLOCATION OF B A S I S. — The basis of distributed properties to which subsection (a)(2) or subsection (b) is applicable shall be allotated— (1) 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 (or if the basis to be allocated is less than the sum of the adjusted bases of such properties to the partnership, in proportion to such bases), and (2) to the extent of any remaining basis, to any other distributed properties in proportion to their adjusted bases to the partnership. (d) SPECIAL PARTNERSHIP BASIS TO TRANSFER E E. — 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 or his delegate, 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 or his delegate 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 § 731(a)
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