Internal Revenue Code · 26 U.S.C.
§ 735. Character of gain or loss on disposition of distributed property
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. § 735
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
- August 5, 1997 by Pub. L. 105–34
- Amendments
- 2 dated changes in the source credit
- Length
- 3 subsections · 320 words · about 1 min to read
- Cross-references
- cites 4; cited by 1 Code section and 3 other regulations
- Regulations
- 1 issued under this section
Gain or loss on the disposition by a distributee partner of unrealized receivables (as defined in section 751(c)) distributed by a partnership, shall be considered as ordinary income or as ordinary loss, as the case may be.
Gain or loss on the sale or exchange by a distributee partner of inventory items (as defined in section 751(d)) distributed by a partnership shall, if sold or exchanged within 5 years from the date of the distribution, be considered as ordinary income or as ordinary loss, as the case may be.
In determining the period for which a partner has held property received in a distribution from a partnership (other than for purposes of subsection (a)(2)), there shall be included the holding period of the partnership, as determined under section 1223, with respect to such property.
For purposes of this section, section 751(d) (defining inventory item) shall be applied without regard to any holding period in section 1231(b).
If any property described in subsection (a) 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 nonrecognition transactions.
Subparagraph (A) shall not apply to any stock in a C corporation received in an exchange described in section 351.
(Aug. 16, 1954, ch. 763, 68A Stat. 247; Pub. L. 94–455, title XIX, § 1901(b)(3)(D), Oct. 4, 1976, 90 Stat. 1792; Pub. L. 98–369, div. A, title I, § 74(b), July 18, 1984, 98 Stat. 593; Pub. L. 105–34, title X, § 1062(b)(3), Aug. 5, 1997, 111 Stat. 947.)
Regulations under this section
Treasury regulations (26 CFR) issued under § 735
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
- § 1223 Holding period of property
- § 1231 Property used in the trade or business and involuntary conversions
- § 351 Transfer to corporation controlled by transferor
Cited by 1 Code section
Cited in 3 regulations not issued under it
Amendment history
From the source credit and the official notes, newest first.
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
- § 737 Recognition of precontribution gain in case of certain distributions to contributing partner
Official notes
Show the Law Revision Counsel's notes (amendments, effective dates)
Editorial Notes
Amendments
1997—Subsecs. (a)(2), (c)(1). Pub. L. 105–34 substituted “section 751(d)” for “section 751(d)(2)”.
1984—Subsec. (c). Pub. L. 98–369 added subsec. (c).
1976—Subsec. (a)(1), (2). Pub. L. 94–455 substituted “as ordinary income or as ordinary loss, as the case may be” for “gain or loss from the sale or exchange of property other than a capital asset”.
Statutory Notes and Related Subsidiaries
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 1984 Amendment
Pub. L. 98–369, div. A, title I, § 74(d)(2), July 18, 1984, 98 Stat. 594, provided that: “The amendment made by subsection (b) [amending this section] shall apply to property distributed after March 31, 1984, in taxable years ending after such date.”
Effective Date of 1976 Amendment
Amendment by 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.