Code of Federal Regulations · Section
§ 1.731-1 — -1 Extent Of Recognition Of Gain Or Loss On Distribution
26 C.F.R. § 1.731-1
(a) Recognition of gain or loss to partner—(1) Recognition of gain. (i) Where money is distributed by a partnership to a partner, no gain shall be recognized to the partner except to the extent that the amount of money distributed exceeds the adjusted basis of the partner's interest in the partnership immediately before the distribution. This rule is applicable both to current distributions (i.e., distributions other than in liquidation of an entire interest) and to distributions in liquidation of a partner's entire interest in a partnership. Thus, if a partner with a basis for his interest of $10,000 receives a distribution of cash of $8,000 and property with a fair market value of $3,000, no gain is recognized to him. If $11,000 cash were distributed, gain would be recognized to the extent of $1,000. No gain shall be recognized to a distributee partner with respect to a distribution of property (other than money) until he sells or otherwise disposes of such property, except 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). See section 731(c) and paragraph (c) of this section.
(ii) For the purposes of sections 731 and 705, advances or drawings of money or property against a partner's distributive share of income shall be treated as current distributions made on the last day of the partnership taxable year with respect to such partner.
(2) Recognition of loss. Loss is recognized to a partner only upon liquidation of his entire interest in the partnership, and only if the property distributed to him consists solely of money, unrealized receivables (as defined in section 751(c)), and inventory items (as defined in section 751(d)(2)). The term liquidation of a partner's interest, as defined in section 761(d), is the termination of the partner's entire interest in the partnership by means of a distribution or a series of distributions. Loss is recognized to the distributee partner in such cases to the extent of the excess of the adjusted basis of such partner's interest in the partnership at the time of the distribution over the sum of:
(i) Any money distributed to him, and
(ii) The basis to the distributee, as determined under section 732, of any unrealized receivables and inventory items that are distributed to him.
If the partner whose interest is liquidated receives any property other than money, unrealized receivables, or inventory items, then no loss will be recognized. Application of the provisions of this subparagraph may be illustrated by the following examples:
Partner A has a partnership interest in partnership ABC with an adjusted basis to him of $10,000. He retires from the partnership and receives, as a distribution in liquidation of his entire interest, his share of partnership property. This share is $5,000 cash and inventory with a basis to him (under section 732) of $3,000. Partner A realizes a capital loss of $2,000, which is recognized under section 731(a)(2).
Partner B has a partnership interest in partnership BCD with an adjusted basis to him of $10,000. He retires from the partnership and receives, as a distribution in liquidation of his entire interest, his share of partnership property. This share is $4,000 cash, real property (used in the trade or business) with an adjusted basis to the partnership of $2,000, and unrealized receivables having a basis to him (under section 732) of $3,000. No loss will be recognized to B on the transaction because he received property other than money, unrealized receivables, and inventory items. As determined under section 732, the basis to B for the real property received is $3,000.
(3) Character of gain or loss. Gain or loss recognized under section 731(a) on a distribution is considered gain or loss from the sale or exchange of the partnership interest of the distributee partner, that is, capital gain or loss.
(b) Gain or loss recognized by partnership. A distribution of property (including money) by a partnership to a partner does not result in recognized gain or loss to the partnership under section 731. However, recognized gain or loss may result to the partnership from certain distributions which, under section 751(b), must be treated as a sale or exchange of property between the distributee partner and the partnership.
(c) Exceptions. (1) Section 731 does not apply to the extent otherwise provided by:
(i) Section 736 (relating to payments to a retiring partner or to a deceased partner's successor in interest) and
(ii) Section 751 (relating to unrealized receivables and inventory items).
For example, payments under section 736(a), which are considered as a distributive share or guaranteed payment, are taxable as such under that section.
(2) The receipt by a partner from the partnership of money or property under an obligation to repay the amount of such money or to return such property does not constitute a distribution subject to section 731 but is a loan governed by section 707(a). To the extent that such an obligation is canceled, the obligor partner will be considered to have received a distribution of money or property at the time of cancellation.
(3) If there is a contribution of property to a partnership and within a short period:
(i) Before or after such contribution other property is distributed to the contributing partner and the contributed property is retained by the partnership, or
(ii) After such contribution the contributed property is distributed to another partner,
such distribution may not fall within the scope of section 731. Section 731 does not apply to a distribution of property, if, in fact, the distribution was made in order to effect an exchange of property between two or more of the partners or between the partnership and a partner. Such a transaction shall be treated as an exchange of property.
Authorizing Statute
-
Rules and regulations26 U.S.C. § 7805
-
Advanced manufacturing production credit26 U.S.C. § 45X
-
Alcohol, etc., used as fuel26 U.S.C. § 40
-
Gross income defined26 U.S.C. § 61
-
Transfers of excess pension assets to retiree health accounts26 U.S.C. § 420
-
Partial exclusion for gain from certain small business stock26 U.S.C. § 1202
-
Tax treatment of stripped bonds26 U.S.C. § 1286
-
Current taxation of income from qualified electing funds26 U.S.C. § 1293
-
Imposition of tax on certain foreign procurement26 U.S.C. § 5000C
-
Returns regarding payments of interest26 U.S.C. § 6049
-
Signing of returns and other documents26 U.S.C. § 6061
-
General requirement of return, statement, or list26 U.S.C. § 6011
-
Income from discharge of indebtedness26 U.S.C. § 108
-
Indian general welfare benefits26 U.S.C. § 139E
-
Bonds must be registered to be tax exempt; other requirements26 U.S.C. § 149
-
Trade or business expenses26 U.S.C. § 162
-
Accelerated cost recovery system26 U.S.C. § 168
-
Amortizable bond premium26 U.S.C. § 171
-
Golden parachute payments26 U.S.C. § 280G
-
Distributions of stock and stock rights26 U.S.C. § 305
-
Transfer to corporation controlled by transferor26 U.S.C. § 351
-
Special rules for long-term contracts26 U.S.C. § 460
-
Determination of basis of partner’s interest26 U.S.C. § 705
-
Taxes of foreign countries and of possessions of United States26 U.S.C. § 901
-
Controlled foreign corporations; United States persons26 U.S.C. § 957
-
New energy efficient home credit26 U.S.C. § 45L
-
2-percent floor on miscellaneous itemized deductions26 U.S.C. § 67
-
Certain death benefits26 U.S.C. § 101
-
Qualified business income26 U.S.C. § 199A
-
Installment method26 U.S.C. § 453
-
Certain payments for the use of property or services26 U.S.C. § 467
-
Partners, not partnership, subject to tax26 U.S.C. § 701
-
Extent of recognition of gain or loss on distribution26 U.S.C. § 731
-
Capitalization of certain policy acquisition expenses26 U.S.C. § 848
-
Special rules for determining source26 U.S.C. § 863
-
Income of foreign governments and of international organizations26 U.S.C. § 892
-
Definitions and special rules26 U.S.C. § 6241
-
Computation and payment of tax26 U.S.C. § 1503
-
Adjusted gross income defined26 U.S.C. § 62
-
Treatment of loans with below-market interest rates26 U.S.C. § 7872
-
Basis to distributees26 U.S.C. § 358
-
Minimum participation standards26 U.S.C. § 410
-
Other definitions and special rules26 U.S.C. § 860G
-
Adjustments required by changes in method of accounting26 U.S.C. § 481
-
Definitions26 U.S.C. § 7701
-
Insurance income26 U.S.C. § 953
-
Returns relating to actions affecting basis of specified securities26 U.S.C. § 6045B
-
Information relating to certain trusts and annuity plans26 U.S.C. § 6047
-
Enhanced oil recovery credit26 U.S.C. § 43
-
Energy efficient commercial buildings deduction26 U.S.C. § 179D
-
Redemption through use of related corporations26 U.S.C. § 304
-
Certain stock purchases treated as asset acquisitions26 U.S.C. § 338
-
Special limitations on certain excess credits, etc.26 U.S.C. § 383
-
Optional treatment of elective deferrals as Roth contributions26 U.S.C. § 402A
-
General rule for taxable year of inclusion26 U.S.C. § 451
-
Qualified ABLE programs26 U.S.C. § 529A
-
Charitable remainder trusts26 U.S.C. § 664
-
Nonrecognition of gain or loss on contribution26 U.S.C. § 721
-
Investment of earnings in United States property26 U.S.C. § 956
-
Definitions and special rule26 U.S.C. § 1377
-
Relief from joint and several liability on joint return26 U.S.C. § 6015
-
Return of S corporation26 U.S.C. § 6037
-
Notice of certain transfers to foreign persons26 U.S.C. § 6038B
-
Information at source26 U.S.C. § 6041
-
Imposition of accuracy-related penalty on underpayments26 U.S.C. § 6662
-
Tax imposed26 U.S.C. § 1
-
Railroad track maintenance credit26 U.S.C. § 45G
-
Zero-emission nuclear power production credit26 U.S.C. § 45U
-
Rehabilitation credit26 U.S.C. § 47
-
Clean electricity investment credit26 U.S.C. § 48E
-
Special rules26 U.S.C. § 52
-
Election to expense certain depreciable business assets26 U.S.C. § 179
-
Individual retirement accounts26 U.S.C. § 408
-
Special rules for nondealers26 U.S.C. § 453A
-
Deductions limited to amount at risk26 U.S.C. § 465
-
Exemption from tax on corporations, certain trusts, etc.26 U.S.C. § 501
-
Definition of regulated investment company26 U.S.C. § 851
-
Source rules for personal property sales26 U.S.C. § 865
-
Tax on nonresident alien individuals26 U.S.C. § 871
-
Foreign base company income26 U.S.C. § 954
-
S corporation defined26 U.S.C. § 1361
-
Definitions26 U.S.C. § 1402
-
Distributions of property26 U.S.C. § 301
-
Life insurance contract defined26 U.S.C. § 7702
-
Previously-owned clean vehicles26 U.S.C. § 25E
-
Electricity produced from certain renewable resources, etc.26 U.S.C. § 45
-
Clean fuel production credit26 U.S.C. § 45Z
-
Taxation of employee annuities26 U.S.C. § 403
-
Last-in, first-out inventories26 U.S.C. § 472
-
Allocation of income and deductions among taxpayers26 U.S.C. § 482
-
Definitions applicable to subparts A, B, C, and D26 U.S.C. § 643
-
Taxable years of partner and partnership26 U.S.C. § 706
-
Disposition of investment in United States real property26 U.S.C. § 897
-
Administrative adjustment request by partnership26 U.S.C. § 6227
-
Citizens or residents of the United States living abroad26 U.S.C. § 911
-
Residence and source rules involving possessions26 U.S.C. § 937
-
Rules relating to expatriated entities and their foreign parents26 U.S.C. § 7874
-
Regulations26 U.S.C. § 1502
-
Capitalization and inclusion in inventory costs of certain expenses26 U.S.C. § 263A
-
Foreign corporations26 U.S.C. § 367
-
Roth IRAs26 U.S.C. § 408A
-
Minimum vesting standards26 U.S.C. § 411
-
Partner’s distributive share26 U.S.C. § 704
-
Unrealized receivables and inventory items26 U.S.C. § 751
-
Taxation of residual interests26 U.S.C. § 860C
-
Exclusions from gross income26 U.S.C. § 883
-
Income affected by treaty26 U.S.C. § 894
-
Other definitions and special rules26 U.S.C. § 989
-
Special rules26 U.S.C. § 1474
-
Returns of brokers26 U.S.C. § 6045
-
Information returns of tax return preparers26 U.S.C. § 6060
-
Authority to make credits or refunds26 U.S.C. § 6402
-
Failure by individual to pay estimated income tax26 U.S.C. § 6654
-
Interest on certain home mortgages26 U.S.C. § 25
-
Credit for qualified commercial clean vehicles26 U.S.C. § 45W
-
Interest on State and local bonds26 U.S.C. § 103
-
Qualified lessee construction allowances for short-term leases26 U.S.C. § 110
-
Losses26 U.S.C. § 165
-
Charitable, etc., contributions and gifts26 U.S.C. § 170
-
Incentive stock options26 U.S.C. § 422
-
Deemed paid credit for subpart F inclusions26 U.S.C. § 960
-
Election of mark to market for marketable stock26 U.S.C. § 1296
-
Returns relating to certain life insurance contract transactions26 U.S.C. § 6050Y
-
Clean vehicle credit26 U.S.C. § 30D
-
Credit for carbon oxide sequestration26 U.S.C. § 45Q
-
Amount of credit26 U.S.C. § 46
-
Advanced manufacturing investment credit26 U.S.C. § 48D
-
Arbitrage26 U.S.C. § 148
-
Amortization of goodwill and certain other intangibles26 U.S.C. § 197
-
Interest on education loans26 U.S.C. § 221
-
Disallowance of certain entertainment, etc., expenses26 U.S.C. § 274
-
Qualifications for tax credit employee stock ownership plans26 U.S.C. § 409
-
Unrelated debt-financed income26 U.S.C. § 514
-
Rules for allocation of basis26 U.S.C. § 755
-
Rules for certain reserves26 U.S.C. § 807
-
Special rules in case of foreign oil and gas income26 U.S.C. § 907
-
Basis of property acquired from a decedent26 U.S.C. § 1014
-
Special rules26 U.S.C. § 1298
-
Definitions26 U.S.C. § 3401
-
Extension of time for filing returns26 U.S.C. § 6081
-
Renumbered § 45C]26 U.S.C. § 28
-
Credit for production of clean hydrogen26 U.S.C. § 45V
-
Energy credit26 U.S.C. § 48
-
Limitation on credit26 U.S.C. § 904
-
Qualified pension, profit-sharing, and stock bonus plans26 U.S.C. § 401
-
Dependent care assistance programs26 U.S.C. § 129
-
Special rules for nuclear decommissioning costs26 U.S.C. § 468A
-
Mark to market accounting method for dealers in securities26 U.S.C. § 475
-
Basis of distributed property other than money26 U.S.C. § 732
-
Straddles26 U.S.C. § 1092
-
Qualified electing fund26 U.S.C. § 1295
-
Averaging of farm income26 U.S.C. § 1301
-
Withholdable payments to foreign financial institutions26 U.S.C. § 1471
-
Definitions26 U.S.C. § 1504
-
Basis information to persons acquiring property from decedent26 U.S.C. § 6035
-
Information with respect to certain foreign-owned corporations26 U.S.C. § 6038A
-
Returns relating to cash received in trade or business, etc.26 U.S.C. § 6050I
-
Credit for increasing research activities26 U.S.C. § 41
-
Definitions and special rules26 U.S.C. § 150
-
Passive activity losses and credits limited26 U.S.C. § 469
-
Certain expenses for which credits are allowable26 U.S.C. § 280C
-
Assumption of liability26 U.S.C. § 357
-
Complete liquidations of subsidiaries26 U.S.C. § 332
-
Distribution of stock and securities of a controlled corporation26 U.S.C. § 355
-
Period for computation of taxable income26 U.S.C. § 441
-
General rule for taxable year of deduction26 U.S.C. § 461
-
Special rules for modified guaranteed contracts26 U.S.C. § 817A
-
Treatment of variable contracts26 U.S.C. § 817
-
Certain reinsurance agreements26 U.S.C. § 845
-
Failure to file notice of redetermination of foreign tax26 U.S.C. § 6689
-
Branch transactions26 U.S.C. § 987
-
Qualified zone property defined26 U.S.C. § 1397D
-
Withholdable payments to other foreign entities26 U.S.C. § 1472
-
Liquidating, etc., transactions26 U.S.C. § 6043
-
Verification of returns26 U.S.C. § 6065
-
Mode or time of collection26 U.S.C. § 6302
-
Transfer of certain credits26 U.S.C. § 6418
-
American Opportunity and Lifetime Learning credits26 U.S.C. § 25A
-
Refundable credit for coverage under a qualified health plan26 U.S.C. § 36B
-
Clean electricity production credit26 U.S.C. § 45Y
-
Other special rules26 U.S.C. § 50
-
Treatment of community income26 U.S.C. § 66
-
Basis to corporations26 U.S.C. § 362
-
Election of taxable year other than required taxable year26 U.S.C. § 444
-
Transactions between partner and partnership26 U.S.C. § 707
-
Special allocation rules for certain asset acquisitions26 U.S.C. § 1060
-
Discounted unpaid losses defined26 U.S.C. § 846
-
Definitions and special rules26 U.S.C. § 864
-
Capital asset defined26 U.S.C. § 1221
-
Interest on tax deferral26 U.S.C. § 1291
-
Passive foreign investment company26 U.S.C. § 1297
-
Withholding of tax on nonresident aliens26 U.S.C. § 1441
-
Returns as to interests in foreign partnerships26 U.S.C. § 6046A
-
State and local income tax refunds26 U.S.C. § 6050E
-
Returns relating to exchanges of certain partnership interests26 U.S.C. § 6050K
-
Returns relating to higher education tuition and related expenses26 U.S.C. § 6050S
-
Reporting of health insurance coverage26 U.S.C. § 6055
-
Low-income housing credit26 U.S.C. § 42
-
New markets tax credit26 U.S.C. § 45D
-
Definitions and special rules26 U.S.C. § 414
-
Qualified asset account; limitation on additions to account26 U.S.C. § 419A
-
General rule for methods of accounting26 U.S.C. § 446
-
Interest on certain deferred payments26 U.S.C. § 483
-
Reserves for losses on loans of banks26 U.S.C. § 585
-
Certain revocable trusts treated as part of estate26 U.S.C. § 645
-
Insurance company taxable income26 U.S.C. § 832
-
Income from sources within the United States26 U.S.C. § 861
-
Treatment of certain foreign currency transactions26 U.S.C. § 988
-
Functional currency26 U.S.C. § 985
-
Other definitions and special rules26 U.S.C. § 1275
-
Election to extend time for payment of tax on undistributed earnings26 U.S.C. § 1294
-
Requirement to maintain minimum essential coverage26 U.S.C. § 5000A
-
Returns by exempt organizations26 U.S.C. § 6033
-
Information with respect to foreign financial assets26 U.S.C. § 6038D
-
Returns relating to the cancellation of indebtedness by certain entities26 U.S.C. § 6050P
-
Identifying numbers26 U.S.C. § 6109
-
Elective payment of applicable credits26 U.S.C. § 6417
-
Certain fringe benefits26 U.S.C. § 132
-
Dependent defined26 U.S.C. § 152
-
Interest26 U.S.C. § 163
-
Bad debts26 U.S.C. § 166
-
Special rules for credits and deductions26 U.S.C. § 642
-
General rule for inventories26 U.S.C. § 471
-
Political organizations26 U.S.C. § 527
-
Special rules applicable to sections 661 and 66226 U.S.C. § 663
-
Allowance of deductions and credits26 U.S.C. § 874
-
Branch profits tax26 U.S.C. § 884
-
Tax imposed on certain built-in gains26 U.S.C. § 1374
-
Foreign tax-exempt organizations26 U.S.C. § 1443
-
Valuation tables26 U.S.C. § 7520
-
Losses on small business stock26 U.S.C. § 1244
-
Distributions26 U.S.C. § 1368
-
Definitions26 U.S.C. § 1473
-
Information with respect to certain fines, penalties, and other amounts26 U.S.C. § 6050X
-
Failure by corporation to pay estimated income tax26 U.S.C. § 6655