Internal Revenue Code · 26 U.S.C.
§ 732. Basis of distributed property other than money
Official text, no changes From the Office of the Law Revision Counsel, release point 119-121 (current through Public Law 119-121 (October 9, 2026)). Compare it with the official text at uscode.house.gov (external site).
Cite as 26 U.S.C. § 732
At a glance
Read from the text, the source credit and the official notes. Not part of the law.
- Status
- In force
- Enacted
- October 4, 1976 by Pub. L. 94–455
- Last amended
- December 17, 1999 by Pub. L. 106–170
- Amendments
- 2 dated changes in the source credit
- Length
- 6 subsections · 1,274 words · about 6 min to read
- Defines
- 1 term
- Cross-references
- cites 4; cited by 8 Code sections and 41 other regulations
- Regulations
- 3 issued under this section
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.
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).
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).
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.
(Aug. 16, 1954, ch. 736, 68A Stat. 246; Pub. L. 94–455, title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 105–34, title X, §§ 1061(a), 1062(b)(3), Aug. 5, 1997, 111 Stat. 945, 947; Pub. L. 106–170, title V, § 538(a), Dec. 17, 1999, 113 Stat. 1939.)
Terms defined here
Where the text says “the term … means”. Select a term to jump to its definition.
Regulations under this section
Treasury regulations (26 CFR) issued under § 732
Cross-references
Computed from the citations in the text of Title 26 and 26 CFR.
This section cites 4 other sections
- § 751(c) Unrealized receivables and inventory items
- § 754 Manner of electing optional adjustment to basis of partnership property
- § 743(b) Special rules where section 754 election or substantial built-in loss
- § 1504(a)(2) Definitions
Cited by 8 Code sections
- § 197(f)(9)(E) Amortization of goodwill and certain other intangibles
- § 613A(c)(7)(D) Limitations on percentage depletion in case of oil and gas wells
- § 731(c)(4)(A)(i) Extent of recognition of gain or loss on distribution
- § 733(2) Basis of distributee partner’s interest
- § 734(b)(1)(B) Adjustment to basis of undistributed partnership property where section 754 election or substantial basis reduction
- § 743(e)(4) Special rules where section 754 election or substantial built-in loss
- § 751(c)(2) Unrealized receivables and inventory items
- § 1276(c)(3) Disposition gain representing accrued market discount treated as ordinary income
Cited in 41 regulations not issued under it
- § 1.59A-7 Application of base erosion and anti-abuse tax to partnerships.
- § 1.168(k)-2 Additional first year depreciation deduction for property acquired and placed in service after September 27, 2017.
- § 1.171-1 Bond premium.
- § 1.179-4 Definitions.
- § 1.197-0 Table of contents.
- § 1.197-2 Amortization of goodwill and certain other intangibles.
- § 1.199A-2 Determination of W-2 wages and unadjusted basis immediately after acquisition of qualified property.
- § 1.250(b)-2 Qualified business asset investment (QBAI).
- § 1.337(d)-3 Gain recognition upon certain partnership transactions involving a partner's stock.
- § 1.355-0 Outline of sections.
- § 1.355-6 Recognition of gain on certain distributions of stock or securities in controlled corporation.
- § 1.460-4 Methods of accounting for long-term contracts.
- § 1.613A-3 Exemption for independent producers and royalty owners.
- § 1.701-2 Anti-abuse rule.
- § 1.704-1 Partner's distributive share.
- § 1.704-4 Distribution of contributed property.
- § 1.708-1 Continuation of partnership.
- § 1.723-1 Basis of property contributed to partnership.
- § 1.731-1 Extent of recognition of gain or loss on distribution.
- § 1.731-2 Partnership distributions of marketable securities.
- § 1.733-1 Basis of distributee partner's interest.
- § 1.734-1 Optional adjustment to basis of undistributed partnership property.
- § 1.734-2 Adjustment after distribution to transferee partner.
- § 1.737-2 Exceptions and special rules.
Show 17 more
- § 1.737-3 Basis adjustments; Recovery rules.
- § 1.737-4 Anti-abuse rule.
- § 1.743-1 Optional adjustment to basis of partnership property.
- § 1.751-1 Unrealized receivables and inventory items.
- § 1.752-7 Partnership assumption of partner's § 1.752-7 liability on or after June 24, 2003.
- § 1.755-1 Rules for allocation of basis.
- § 1.761-1 Terms defined.
- § 1.901(m)-2 Covered asset acquisitions and relevant foreign assets.
- § 1.951A-3 Qualified business asset investment.
- § 1.1045-1 Application to partnerships.
- § 1.1245-4 Exceptions and limitations.
- § 1.1250-3 Exceptions and limitations.
- § 1.1272-2 Treatment of debt instruments purchased at a premium.
- § 1.1374-4 Recognized built-in gain or loss.
- § 1.1502-13 Intercompany transactions.
- § 1.6011-18 Certain partnership related-party basis adjustment transactions as transactions of interest.
- § 1.7704-1 Publicly traded partnerships.
Amendment history
From the source credit and the official notes, newest first.
- Amended by Pub. L. 106–170Parts changed in 1999: (f)
- Amended by Pub. L. 105–34Parts changed in 1997: (c) (c)(1)(A)(i)
- Enacted by Pub. L. 94–455Parts changed in 1976: (d)
Where it sits in the Code
- Subtitle A Income Taxes
- Chapter 1 NORMAL TAXES AND SURTAXES
- Subchapter K Partners and Partnerships
- Part II CONTRIBUTIONS, DISTRIBUTIONS, AND TRANSFERS
- Subpart B Distributions by a Partnership
Nearby sections
- § 731 Extent of recognition of gain or loss on distribution
- § 732 Basis of distributed property other than money
- § 733 Basis of distributee partner’s interest
- § 734 Adjustment to basis of undistributed partnership property where section 754 election or substantial basis reduction
- § 735 Character of gain or loss on disposition of distributed property
- § 736 Payments to a retiring partner or a deceased partner’s successor in interest
Official notes
Show the Law Revision Counsel's notes (amendments, effective dates)
Editorial Notes
Amendments
1999—Subsec. (f). Pub. L. 106–170 added subsec. (f).
1997—Subsec. (c). Pub. L. 105–34, § 1061(a), amended heading and text of subsec. (c) generally. Prior to amendment, text read as follows: “The basis of distributed properties to which subsection (a)(2) or subsection (b) is applicable shall be allocated—
“(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.”
Subsec. (c)(1)(A)(i). Pub. L. 105–34, § 1062(b)(3), substituted “section 751(d)” for “section 751(d)(2)”.
1976—Subsec. (d). Pub. L. 94–455 struck out “or his delegate” after “Secretary”.
Statutory Notes and Related Subsidiaries
Effective Date of 1999 Amendment
Pub. L. 106–170, title V, § 538(b), Dec. 17, 1999, 113 Stat. 1940, provided that:
“(1) In general.— Except as provided in paragraph (2), the amendment made by this section [amending this section] shall apply to distributions made after July 14, 1999.“(2) Partnerships in existence on July 14, 1999.— In the case of a corporation which is a partner in a partnership as of July 14, 1999, the amendment made by this section shall apply to any distribution made (or treated as made) to such partner from such partnership after June 30, 2001, except that this paragraph shall not apply to any distribution after the date of the enactment of this Act [Dec. 17, 1999] unless the partner makes an election to have this paragraph apply to such distribution on the partner’s return of Federal income tax for the taxable year in which such distribution occurs.”
Effective Date of 1997 Amendment
Pub. L. 105–34, title X, § 1061(b), Aug. 5, 1997, 111 Stat. 946, provided that: “The amendment made by subsection (a) [amending this section] shall apply to distributions after the date of the enactment of this Act [Aug. 5, 1997].”
Amendment by section 1062(b)(3) of 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.