Page 491

TITLE 26-INTERNAL REVENUE CODE SECTION REFERRED TO IN OTHE SECTIONS This section is referred to in sections 731, 751, 753 of this title; title 29 sections 1051, 1081, 1101. SUBPART C-TRANSFERS OF INTERESTS IN A PARTNERSHIP Sec. 741. Recognition and character of gain or loss on sale or exchange. 742. Basis of transferee partner's interest. 743. Optional adjustment to basis of partnership property. § 741. Recognition and character of gain or loss on sale or exchange In the case of a sale or exchange of an inter- est in a partnership, gain or loss shall be recog- nized to the transferor partner. Such gain or loss shall be considered as gain or loss from the sale or exchange of a capital asset, except as otherwise provided in section 751 (relating to unrealized receivables and inventory items which have appreciated substantially in value). (Aug. 16, 1954, ch. 736, 68A Stat. 248.) SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in section 751 of this title. § 742. Basis of transferee partner's interest The basis of an interest in a partnership ac- quired other than by contribution shall be de- termined under part II of subehapter 0 (sec. 1011 and following). (Aug. 16, 1954, ch. 736, 68A Stat. 249.) CROSS RxrERENcEs Determination of basis of partner's interest, see sec- tion 705 of this title. SECTION RErsEuM TO IN OTHER SECTIONS This section is referred to in section 705 of this title. § 743. Optional adjustment to basis of partnership property (a) General rule The basis of partnership property shall not be adjusted as the result of a transfer of an in- terest in a partnership by sale or exchange or on the death of a partner unless the election provided by section 754 (relating to optional ad- Justment to basis of partnership property) is in effect with respect to such partnership. (b) Adjustment to basis of partnership property In the case of a transfer of an interest in a partnership by sale or exchange or upon the death of a partner, a partnership with respect to which the election provided in section 754 is in effect shall- (1) increase the adjusted basis of the part- nership property by the excess of the basis to the transferee partner of his interest in the partnership over his proportionate share of the adjusted basis of the partnership proper- ty, or (2) decrease the adjusted basis of the part- nership property by the excess of the trans- feree partner's proportionate share of the ad- justed basis of the partnership property over the basis of his interest in the partnership. Under regulations prescribed by the Secretary, such increase or decrease shall constitute an ad- justment to the basis of partnership property with respect to the transferee partner only. A partner's proportionate share of the adjusted basis of partnership property shall be deter- mined in accordance with his interest in part- nership capital an±d, in the case of an agree- ment described in section 704(c)(2) (relating to effect of partnership agreement on contributed property), such share shall be determined by taking such agreement into account. In the case of an adjustment under this subsection to the basis of partnership property subject to deple- tion, any depletion allowable shall be deter- mined separately for the transferee partner with respect to his interest in such property. (c) Allocation of basis The allocation of basis among partnership properties where subsection (b) is applicable shall be made in accordance with the rules pro- vided in section 755. (Aug. 16, 1954, ch. 736, 68A Stat. 249; Oct. 4, 1976, Pub. L. 94-455, title XIX, § 1906(b)(13)(A;, 90 Stat. 1834.) AMENDMENTS 1976-Subsec. (b). Pub. L. 94-455 struck out "or his delegate" following "Secretary". CROSS RFERE:NcEs Manner of electing optional adjustment to basis of partnership property, see section 754 of this title. Rules for allocation of basis, see section 755 of this title. SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 732, 754, 755 of this title. SUBPART D-PRovSIONS.COMMON TO OTHER SUBPARTS Sec. 751. Unrealized receivables and inventory items. 752. Treatment of certain liabilities. 753. Partner receiving income in respect of decedent. 754. Manner of electing optional adjustment to basis of partnership property. 755. Rules for allocation of basis. § 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 in- terest in the partnership attributable to- (1) unrealized receivables of the partner- ship, or (2) inventory items of the partnership which have appreciated substantially in value, 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 distri- bution- (A) partnership property described in sub- section (a)(1) or (2) in exchange for all or a part of his interest in other partnership property (including money), cr (B) partnership property (including money) other than property described in Page 491 § 751