Internal Revenue Code:Sec. 751. Unrealized receivables and inventory items
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Location in Internal Revenue Code
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter K - Partners and Partnerships
PART II - CONTRIBUTIONS, DISTRIBUTIONS, AND TRANSFERS
Subpart D - Provisions Common to Other Subparts
Statute
Sec. 751. Unrealized receivables and inventory items
(a) Sale or exchange of interest in partnership
The amount of any money, or the fair market value of any
property, received by a transferor partner in exchange for all or a
part of his interest in the partnership attributable to -
(1) unrealized receivables of the partnership, or
(2) inventory items of the partnership,
shall be considered as an amount realized from the sale or exchange
of property other than a capital asset.
(b) Certain distributions treated as sales or exchanges
(1) General rule
To the extent a partner receives in a distribution -
(A) partnership property which is -
(i) unrealized receivables, or
(ii) inventory items which have appreciated substantially
in value,
in exchange for all or a part of his interest in other
partnership property (including money), or
(B) partnership property (including money) other than
property described in subparagraph (A)(i) or (ii) in exchange
for all or a part of his interest in partnership property
described in subparagraph (A)(i) or (ii),
such transactions shall, under regulations prescribed by the
Secretary, be considered as a sale or exchange of such property
between the distributee and the partnership (as constituted after
the distribution).
(2) Exceptions
Paragraph (1) shall not apply to -
(A) a distribution of property which the distributee
contributed to the partnership, or
(B) payments, described in section 736(a), to a retiring
partner or successor in interest of a deceased partner.
(3) Substantial appreciation
For purposes of paragraph (1) -
(A) In general
Inventory items of the partnership shall be considered to
have appreciated substantially in value if their fair market
value exceeds 120 percent of the adjusted basis to the
partnership of such property.
(B) Certain property excluded
For purposes of subparagraph (A), there shall be excluded any
inventory property if a principal purpose for acquiring such
property was to avoid the provisions of this subsection
relating to inventory items.
(c) Unrealized receivables
For purposes of this subchapter, the term ''unrealized
receivables'' includes, to the extent not previously includible in
income under the method of accounting used by the partnership, any
rights (contractual or otherwise) to payment for -
(1) goods delivered, or to be delivered, to the extent the
proceeds therefrom would be treated as amounts received from the
sale or exchange of property other than a capital asset, or
(2) services rendered, or to be rendered.
For purposes of this section and, (FOOTNOTE 1) sections 731, 732,
and 741 (but not for purposes of section 736), such term also
includes mining property (as defined in section 617(f)(2)), stock
in a DISC (as described in section 992(a)), section 1245 property
(as defined in section 1245(a)(3)), stock in certain foreign
corporations (as described in section 1248), section 1250 property
(as defined in section 1250(c)), farm land (as defined in section
1252(a)), franchises, trademarks, or trade names (referred to in
section 1253(a)), and an oil, gas, or geothermal property
(described in section 1254) but only to the extent of the amount
which would be treated as gain to which section 617(d)(1), 995(c),
1245(a), 1248(a), 1250(a), 1252(a), 1253(a), or 1254(a) would apply
if (at the time of the transaction described in this section or
section 731, 732, or 741, as the case may be) such property had
been sold by the partnership at its fair market value. For
purposes of this section and, (FOOTNOTE 1) sections 731, 732, and
741 (but not for purposes of section 736), such term also includes
any market discount bond (as defined in section 1278) and any
short-term obligation (as defined in section 1283) but only to the
extent of the amount which would be treated as ordinary income if
(at the time of the transaction described in this section or
section 731, 732, or 741, as the case may be) such property had
been sold by the partnership.
(FOOTNOTE 1) So in original. The comma probably should not
appear.
(d) Inventory items
For purposes of this subchapter, the term ''inventory items''
means -
(1) property of the partnership of the kind described in
section 1221(a)(1),
(2) any other property of the partnership which, on sale or
exchange by the partnership, would be considered property other
than a capital asset and other than property described in section
1231, and
(3) any other property held by the partnership which, if held
by the selling or distributee partner, would be considered
property of the type described in paragraph (1), or (2).
(e) Limitation on tax attributable to deemed sales of section 1248
stock
For purposes of applying this section and sections 731 and 741 to
any amount resulting from the reference to section 1248(a) in the
second sentence of subsection (c), in the case of an individual,
the tax attributable to such amount shall be limited in the manner
provided by subsection (b) of section 1248 (relating to gain from
certain sales or exchanges of stock in certain foreign
corporation).
(f) Special rules in the case of tiered partnerships, etc.
In determining whether property of a partnership is -
(1) an unrealized receivable, or
(2) an inventory item,
such partnership shall be treated as owning its proportionate share
of the property of any other partnership in which it is a partner.
Under regulations, rules similar to the rules of the preceding
sentence shall also apply in the case of interests in trusts.
Sources
(Aug. 16, 1954, ch. 736, 68A Stat. 250; Pub. L. 87-834, Sec.
13(f)(1), 14(b)(2), Oct. 16, 1962, 76 Stat. 1035, 1041; Pub. L.
88-272, title II, Sec. 231(b)(6), Feb. 26, 1964, 78 Stat. 105; Pub.
L. 89-570, Sec. 1(c), Sept. 12, 1966, 80 Stat. 762; Pub. L. 91-172,
title II, Sec. 211(b)(6), Dec. 30, 1969, 83 Stat. 570; Pub. L.
94-455, title II, Sec. 205(b), title X, Sec. 1042(c)(2), title XI,
Sec. 1101(d)(2), title XIX, Sec. 1901(a)(93), 1906(b)(13)(A), title
XXI, Sec. 2110(a), Oct. 4, 1976, 90 Stat. 1535, 1637, 1658, 1780,
1834, 1905; Pub. L. 95-600, title VII, Sec. 701(u)(13)(A), Nov. 6,
1978, 92 Stat. 2918; Pub. L. 95-618, title IV, Sec. 402(c)(5), Nov.
9, 1978, 92 Stat. 3202; Pub. L. 97-448, title I, Sec. 102(a)(6),
Jan. 12, 1983, 96 Stat. 2368; Pub. L. 98-369, div. A, title I,
Sec. 43(c)(3), 76(a), title IV, Sec. 492(b)(4), July 18, 1984, 98
Stat. 558, 595, 854; Pub. L. 99-514, title II, Sec. 201(d)(10),
title XVIII, Sec. 1899A(19), Oct. 22, 1986, 100 Stat. 2141, 2959;
Pub. L. 103-66, title XIII, Sec. 13206(e)(1), 13262(b)(1), (2)(A),
Aug. 10, 1993, 107 Stat. 467, 541; Pub. L. 105-34, title X, Sec.
1062(a)-(b)(2), Aug. 5, 1997, 111 Stat. 946, 947; Pub. L. 105-206,
title VI, Sec. 6010(m), July 22, 1998, 112 Stat. 816; Pub. L.
106-170, title V, Sec. 532(c)(2)(F), Dec. 17, 1999, 113 Stat.
1930.)
Miscellaneous
AMENDMENTS
2004 - Pub.L. 108-357 Sec. 413(c)(11). Subsection (d) of section 751
is amended by adding ``and'' at the end of paragraph (2), by striking
paragraph (3), by redesignating paragraph (4) as paragraph (3), and by
striking ``paragraph (1), (2), or (3)'' in paragraph (3) (as so
redesignated) and inserting ``paragraph (1) or (2)''.
1999 - Subsec. (d)(1). Pub. L. 106-170 substituted ''section
1221(a)(1)'' for ''section 1221(1)''.
1998 - Subsec. (c). Pub. L. 105-206 substituted ''731, 732,'' for
''731'' wherever appearing in concluding provisions.
1997 - Subsec. (a)(2). Pub. L. 105-34, Sec. 1062(a), amended par.
(2) generally. Prior to amendment, par. (2) read as follows:
''inventory items of the partnership which have appreciated
substantially in value,''.
Subsec. (b)(1). Pub. L. 105-34, Sec. 1062(b)(1)(A), added
subpars. (A) and (B) and struck out former subpars. (A) and (B)
which read as follows:
''(A) partnership property described in subsection (a)(1) or (2)
in exchange for all or a part of his interest in other partnership
property (including money), or
''(B) partnership property (including money) other than property
described in subsection (a)(1) or (2) in exchange for all or a part
of his interest in partnership property described in subsection
(a)(1) or (2),''.
Subsec. (b)(3). Pub. L. 105-34, Sec. 1062(b)(1)(B), added par.
(3).
Subsec. (d). Pub. L. 105-34, Sec. 1062(b)(2), amended heading and
text of subsec. (d) generally. Prior to amendment, subsec. (d)
consisted of pars. (1) and (2) relating to inventory items which
have appreciated substantially in value.
1993 - Subsec. (c). Pub. L. 103-66, Sec. 13262(b)(1), in
concluding provisions, substituted ''section 731 or 741'' for
''section 731, 736, or 741'' in two places and '', sections 731 and
741 (but not for purposes of section 736)'' for ''sections 731,
736, and 741'' in two places.
Subsec. (d)(1). Pub. L. 103-66, Sec. 13206(e)(1), amended heading
and text of par. (1) generally. Prior to amendment, text read as
follows: ''Inventory items of the partnership shall be considered
to have appreciated substantially in value if their fair market
value exceeds -
''(A) 120 percent of the adjusted basis to the partnership of
such property, and
''(B) 10 percent of the fair market value of all partnership
property, other than money.''
Subsec. (e). Pub. L. 103-66, Sec. 13262(b)(2)(A), substituted
''sections 731 and 741'' for ''sections 731, 736, and 741''.
1986 - Subsec. (c). Pub. L. 99-514, Sec. 1899A(19), substituted
''section 617(f)(2)), stock'' for ''section 617(f)(2), stock'' in
second sentence.
Pub. L. 99-514, Sec. 201(d)(10), struck out ''section 1245
recovery property (as defined in section 1245(a)(5)),'' before
''stock in certain foreign corporations'' in second sentence.
1984 - Subsec. (c). Pub. L. 98-369, Sec. 492(b)(4), struck out
''farm recapture property (as defined in section 1251(e)(1)),''
before ''farm land'', and ''1251(c),'' after ''1250(a),'' in second
sentence.
Pub. L. 98-369, Sec. 43(c)(3), inserted last sentence.
Subsec. (f). Pub. L. 98-369, Sec. 76(a), added subsec. (f).
1983 - Subsec. (c). Pub. L. 97-448 inserted reference to section
1245 recovery property (as defined in section 1245(a)(5)) in second
sentence.
1978 - Subsec. (c). Pub. L. 95-618 substituted ''oil, gas, or
geothermal property'' for ''oil or gas property'' in second
sentence.
Subsec. (e). Pub. L. 95-600 added subsec. (e).
1976 - Subsec. (b)(1). Pub. L. 94-455, Sec. 1906(b)(13)(A),
struck out ''or his delegate'' after ''Secretary''.
Subsec. (c). Pub. L. 94-455, Sec. 205(b), 1042(c)(2), 1101(d)(2),
1901(a)(93), 2110(a), in second sentence, inserted reference to
stock in a DISC (as described in section 992(a)), reference to
stock in certain foreign corporations (as described in section
1248), and reference to farm land (as defined in section 1252(a)),
franchises, trademarks or trade names (referred to in section
1253(a)), and an oil or gas property (described in section 1254),
substituted ''1252(a), 1253(a), or 1254(a)'' for ''or 1252(a)'',
and inserted ''1248(a),'' after ''1245(a),'' and ''995(c),'' after
''617(d)(1),''.
1969 - Subsec. (c). Pub. L. 91-172, in second sentence,
substituted ''section 1250 property (as defined in section
1250(c)), farm recapture property (as defined in section
1251(e)(1)), and farm land (as defined in section 1252(a))'', and
''1250(a), 1251(c), or 1252(a)'', for ''and section 1250 property
(as defined in section 1250(c))'' and ''1250(a)'', respectively.
1966 - Subsec. (c). Pub. L. 89-570, in second sentence, inserted
reference to mining property (as defined in section 617(f)(2)) and
to section 617(d)(1).
1964 - Subsec. (c). Pub. L. 88-272, in second sentence, inserted
reference to section 1250.
1962 - Subsec. (c). Pub. L. 87-834, Sec. 13(f)(1), defined
''unrealized receivables'' for purposes of this section and section
731, 736, and 741, as including section 1245 property, but only to
the extent of the amount which would be treated as gain to which
section 1245(a) would apply if (at the time of the transaction
described in this section or section 731, 736, or 741, as the case
may be) such property had been sold by the partnership at its fair
market value.
Subsec. (d)(2). Pub. L. 87-834, Sec. 14(b)(2), added subpar. (C),
redesignated former subpar. (C) as (D), and substituted
''subparagraph (A), (B), or (C)'' for ''subparagraph (A) or (B)''.
EFFECTIVE DATE OF 1999 AMENDMENT
Amendment by Pub. L. 106-170 applicable to any instrument held,
acquired, or entered into, any transaction entered into, and
supplies held or acquired on or after Dec. 17, 1999, see section
532(d) of Pub. L. 106-170, set out as a note under section 170 of
this title.
EFFECTIVE DATE OF 1998 AMENDMENT
Amendment by Pub. L. 105-206 effective, except as otherwise
provided, as if included in the provisions of the Taxpayer Relief
Act of 1997, Pub. L. 105-34, to which such amendment relates, see
section 6024 of Pub. L. 105-206, set out as a note under section 1
of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 applicable to sales, exchanges, and
distributions after Aug. 5, 1997, but not applicable to any sale or
exchange pursuant to a written binding contract in effect on June
8, 1997, and at all times thereafter before such sale or exchange,
see section 1062(c) of Pub. L. 105-34, set out as a note under
section 724 of this title.
EFFECTIVE DATE OF 1993 AMENDMENT
Section 13206(e)(2) of Pub. L. 103-66 provided that: ''The
amendment made by paragraph (1) (amending this section) shall apply
to sales, exchanges, and distributions after April 30, 1993.''
Amendment by section 13262(b)(1) and (2)(A) of Pub. L. 103-66
applicable in the case of partners retiring or dying on or after
Jan. 5, 1993, with a binding contract exception, see section
13262(c) of Pub. L. 103-66, set out as a note under section 736 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 201(d)(10) of Pub. L. 99-514 applicable to
property placed in service after Dec. 31, 1986, in taxable years
ending after such date, with exceptions, see sections 203 and 204
of Pub. L. 99-514, set out as a note under section 168 of this
title.
Amendment by section 201(d)(10) of Pub. L. 99-514 not applicable
to any property placed in service before Jan. 1, 1994, if such
property placed in service as part of specified rehabilitations,
and not applicable to certain additional rehabilitations, see
section 251(d)(2), (3) of Pub. L. 99-514, set out as a note under
section 46 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 43(c)(3) of Pub. L. 98-369 applicable to
taxable years ending after July 18, 1984, see section 44 of Pub. L.
98-369, set out as an Effective Date note under section 1271 of
this title.
Section 76(b) of Pub. L. 98-369 provided that: ''The amendment
made by subsection (a) (amending this section) shall apply to
distributions, sales, and exchanges made after March 31, 1984, in
taxable years ending after such date.''
Amendment by section 492(b)(4) of Pub. L. 98-369 applicable to
taxable years beginning after Dec. 31, 1983, see section 492(d) of
Pub. L. 98-369, set out as a note under section 170 of this title.
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by Pub. L. 97-448 effective, except as otherwise
provided, as if it had been included in the provision of the
Economic Recovery Tax Act of 1981, Pub. L. 97-34, to which such
amendment relates, see section 109 of Pub. L. 97-448, set out as a
note under section 1 of this title.
EFFECTIVE DATE OF 1978 AMENDMENTS
Amendment by Pub. L. 95-618 applicable with respect to wells
commenced on or after Oct. 1, 1978, in taxable years ending on or
after such date, see section 402(e) of Pub. L. 95-618, set out as a
note under section 263 of this title.
Section 701(u)(13)(C) of Pub. L. 95-600 provided that: ''The
amendments made by this paragraph (amending this section and
section 736 of this title) shall apply to transfers beginning after
October 9, 1975, and to sales, exchanges, and distributions taking
place after such date.''
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 205(b) of Pub. L. 94-455 effective for
taxable years ending after Dec. 31, 1975, see section 205(e) of
Pub. L. 94-455, set out as an Effective Date note under section
1254 of this title.
Amendment by section 1042(c)(2) of Pub. L. 94-455 applicable to
transfers beginning after Oct. 9, 1975, and to sales, exchanges and
distributions taking place after that date, see section 1042(e)(1)
of Pub. L. 94-455, set out as a note under section 367 of this
title.
Amendment by section 1101(d)(2) of Pub. L. 94-455 applicable to
sales, exchanges, or other dispositions after Dec. 31, 1975, in
taxable years ending after such date, see section 1101(g)(4) of
Pub. L. 94-455, set out as a note under section 995 of this title.
Amendment by section 1901(a)(93) of Pub. L. 94-455 effective for
taxable years beginning after Dec. 31, 1976, see section 1901(d) of
Pub. L. 94-455, set out as a note under section 2 of this title.
Section 2110(b) of Pub. L. 94-455, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: ''Subsection
(a) (amending this section) shall apply to transactions described
in sections 731, 736, 741, or 751 of the Internal Revenue Code of
1986 (formerly I.R.C. 1954) which occur after December 31, 1976, in
taxable years ending after that date.''
EFFECTIVE DATE OF 1969 AMENDMENT
Amendment by Pub. L. 91-172 applicable to taxable years beginning
after Dec. 31, 1969, see section 211(c) of Pub. L. 91-172, set out
as a note under section 301 of this title.
EFFECTIVE DATE OF 1966 AMENDMENT
Amendment by Pub. L. 89-570 applicable to taxable years ending
after Sept. 12, 1966, but only in respect of expenditures paid or
incurred after such date see section 3 of Pub. L. 89-570, set out
as an Effective Date note under section 617 of this title.
EFFECTIVE DATE OF 1964 AMENDMENT
Amendment by Pub. L. 88-272 applicable to dispositions after Dec.
31, 1963, in taxable years ending after such date, see section
231(c) of Pub. L. 88-272, set out as an Effective Date note under
section 1250 of this title.
EFFECTIVE DATE OF 1962 AMENDMENT
Amendment by section 13(f)(1) of Pub. L. 87-834 applicable to
taxable years beginning after Dec. 31, 1962, see section 13(g) of
Pub. L. 87-834, set out as an Effective Date note under section
1245 of this title.
Amendment by section 14(b)(2) of Pub. L. 87-834 applicable with
respect to taxable years beginning after Dec. 31, 1962, see section
14(c) of Pub. L. 87-834, set out as an Effective Date note under
section 1246 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI (Sec. 1101-1147 and 1171-1177) or title
XVIII (Sec. 1800-1899A) of Pub. L. 99-514 require an amendment to
any plan, such plan amendment shall not be required to be made
before the first plan year beginning on or after Jan. 1, 1989, see
section 1140 of Pub. L. 99-514, as amended, set out as a note under
section 401 of this title.
References
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 1, 170, 453, 467, 617,
724, 731, 732, 735, 736, 737, 741, 1245, 1250, 1255, 1257, 6050K of
this title.
