Page 492

TITLE 26-INTERNAL REVENUE CODE subsection (a)(1) or (2) in exchange for all or a part of his interest in partnership prop- erty described in subsection (a)(1) or (2), 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 consti- tuted 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. (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 pay- ment 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 sections 731, 736, and 741, such term also includes mining property (as defined in section 617(f)(2), stock in a DISC (as described in section 992(a)), sec- tion 1245 property (as defined in section 1245(a)(3)), stock in certain foreign corpora- tions (as described in section 1248), section 1250 property (as defined in section 1250(c)), farm recapture property (as defined in section 1251(e)(1)), 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 (de.Lcribed in section 1254) but only to the exter. of the amount which would be treated as gain to which section 617(d)(1), 995(c), 1245(a), 1248(a), 1250(a), 1251(c), 1252(a), 1253(a), or 1254(a) would apply if (at the time of the transaction described in this section or sections 731, 736, or 741, as the case may be) such property had been sold by the partnership at its fair market value. (d) Inventory items which have appreciated substan. tially In value (1) Substantial appreciation Inventory items of the partnership shall be considered to have appreciated substantially in value if their fa!r 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. (2) Inventory items For purposes of this subchapter the term "Inventory items" means- (A) property of the partnership of the kind described in section 1221(1), (B) any other property of the partnership which, on sale or exchange by the partner- ship, would be considered property other than a capital asset and other than proper- ty described in section 1231, (C) any other property of the partnership which, if sold or exchanged by the partner- ship, would result in a gain taxable under subsection (a) of section 1246 (relating to gain on foreign investment company stock), and (D) any other property held by the part- nership which, if held by the selling or dis- tributee partner, would be considered prop- erty of the type described in subparagraph (A), (B), or (C). (Aug. 16, 1954, ch. 736, 68A Stat. 250; Oct. 16, 1962, Pub. L. 87-834, §§ 13(f)(1), 14(b)(2), 76 Stat. 1035, 1041; Feb. 26, 1964, Pub. L. 88-272, title II, § 231(b)(6), 78 Stat. 105; Sept. 12, 1966, Pub. L. 89-570, § 1(c), 80 Stat. 762; Dec. 30, 1969, Pub. L. 91-172, title II, § 211(b)(6), 83 Stat. 570; Oct. 4, 1976, Pub. L. 94-455, title II, § 205(b), title X, § 1042(c)(2), title XI, § 1101(d)(2), title XIX, §§ 1901(a)(93), 1906(b)(13)(A), title XXI, §2110(a), 90 Stat. 1535, 1637, 1658, 1780, 1834, 1905.) AMENDMENTS 1976-Subsec. (b)(1). Pub. L. 94-455, § 1906(b)(13)(A). struck out "or his delegate" following "Secretary". Subsec. (c). Pub. L. 94-455, §§ 205(b), 1042(c)(2). 1101(d)(2), 1901(a)(93), 2110(a), added reference to stock in a DISC (as described in section 992(a)), refer- ence to stock in certain foreign corporations (as de- scribed 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 n section 1254). substituted "1252(a), 1253(a), or 1254(a)" for "or 1252(a)", and in- serted "1248(a)," following "1245(a)," and "995(c)," following "617(d)(1),". 1969-Subsec. (c). Pub. L. 91-172 substituted "section 1250 property (as defined in section 1250(c)), farm re- capture 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-Subsee. (c). Pub. L. 89-570 included reference to mining property (as defined in section 617(f)(2)) and to section 617(d)(1) in the last sentence. 1964-Subsec. (c). Pub. L. 88-272 inserted the refer- ence to section 1250. 1962-Subsec. (c). Pub. L. 87-834, § 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 de- scribed 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, § 14(b)(2), added subpar. (C), and redesignated former subpar. (C) as (D) and substituted therein "subparagraph (A), (B), or (C)" for "subparagraph (A) or (B)". EFFECTIVE DATE OF 1976 AMENDMENT Amendment of subsec. (c) 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 of subsec. (c) 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 an Effective Date of 1976 Amendment note under section 367 of this title. Amendment of subsec. (c) by section 1101(d)(2) of Pub. L. 94-455 applicable to sales, exchanges, or other -§ 761 Page 492