Page 697

§ 1245 TITLE 26-INTERNAL REVENUE CODE (b) Exceptions and limitations (1) Gifts Subsection (a) shall not apply to a disposi- tion by gift. (2) Transfers at death Except as provided in section 691 (relating to income in respect of a decedent), subsec- tion (a) shall not apply to a transfer at death. (3) Certain tax-free transactions If the basis of property in the hands of a transferee is determined by reference to its basis in the hands of the transferor by reason of the application of section 332, 351, 361, 371(a), 374(a), 721, or 731, then the amount of gain taken into account by the transferor under subsection (a)(1) shall not exceed the amount of gain recognized to the transferor on the transfer of such property (determined without regard to this section). Except as pro- vided in paragraph (7), this paragraph shall not apply to a disposition to an organization (other than a cooperative described in section 521) which Is exempt from the tax imposed by this chapter. (4) Like kind exchanges; involuntary conversions, etc. If property is disposed of and gain (deter- mined without regard to this section) is not recognized in whole or in part under section 1031 or 1033, then the amount of gain taken into account by the transferor under subsec- tion (a)(1) shall not exceed the sum of- (A) the amount of gain recognized on such disposition (determined without regard to this section), plus (B) the fair market value of property ac- quired which is not section 1245 property and which is not taken into account under subparagraph (A). (5) Sections 1071 and 1081 transactions Under regulations prescribed by the Secre- tary, rules consistent with paragraphs (3) and (4) of this subsection shall apply in the case of transactions described in section 1071 %re- lating to gain from sale or exchange to effec- tuate policies of FCC) or section 1081 (relat- ing to exchanges in obedience to SEC orders). (6) Property distributed by a partnership to a part- ner (A) In general For purposes of this section, the basis of section 1245 property distributed by a part- nership to a partner shall be deemed to be determined by reference to the adjusted basis of such property to the partnership. (B) Adjustments added back In the case of any property described in subparagraph (A), for purposes of comput- ing the recomputed basis of such property the amount of the adjustments added back for periods before the distribution by' the partnership shall be- (i) the amount of the gain to which Pub- section (a) would have applied if such property had beer sold by the partner- ship immediately before the distribut!on at its fair market value at such time, re- duced by (ii) the amount of such gain to which section 751(b) applied. (7) Transfers to tax-exempt organization where property will be used in unrelated business (A) In general The second sentence of paragraph (3) shall not apply to a disposition of section 1245 property to an organization described in section 511(a)(2) or 511(b)(2) if, immedi- ately after such disposition, such organiza- tion uses such property in an unrelated trade or business (as defined in section 513). (B) Later change in use If any property with respect to the dispo- sition of which gain is not recognized by reason of subparagraph (A) ceases to be used in an unrelated trade or business of the organization acquiring such property, such organization shall be treated for pur- poses of this section as having disposed of such property on the date of such cessation. (c) Adjustments to basis The Secretary shall prescribe such regula- tions as he may deem necessary to provide for adjustments to the basis of property to reflect gain recognized under subsection (a). (d) Application of section This section shall apply notwithstanding any other provision of this subtitle. (Added Pub. L. 87-834, § 13(a)(1), Oct. 16, 1962, 76 Stat. 1032, and amended Pub. L. 88-272, title II, § 203(d), Feb. 26, 1964, 78 Stat. 35; Pub. L. 91-172, title II, § 212(a)(1), (2), title VII, § 704(b)(4), Dec. 30, 1969, 83 Stat. 571, 670; Pub. L. 92-178, title I, § 104(a)(2), title III, § 303(c) (1), (2), Dec. 10, 1971, 85 Stat. 501, 522; Pub. L. 94-81, § 2(a), Aug. 9, 1975, 89 Stat. 417; Pub. L. 94-455, title II, § 212(b)(1), title XIX, §§ 1901 (a)(140), .(b)(3)(K), (11)(D), 1906(b)(13)(A), 1951(c)(2)(C), title XXI, §§ 2122(b)(3), 2124(a)(2), Oct. 4, 1976, 90 Stat. 1546, 1787, 1793, 1795, 1834, 1840, 1915, 1917.) REFER ES iN TEXT The Tax Reform Act of 1976, referred to in text fol- lowing subsec. (a)(2)(D), is Pub. L. 94-455, Oct. 4, 1976, 90 Stat. 1520. For complete classification of this Act to the Code, see Tables volume. Section 168, referred to in text following subsec. (a)(2)(D), was repealed by section 1951(a)(4)(A) of Pub. L. 94-455. AMENDMENTS 1976-Subsec. (a)(1). Pub. L. 94-455, § 1901(b)(3)(K), substituted "ordinary income" for "gain from the sale or exchange of property which is neither a capital asset nor property described in section 1231". Subsec. (a)(2)(D). Pub. L. 94-455, §§ 2122(b)(3)(B), 2124(a)(2), inserted reference to sections 190 and 191. Subsec. (a)(2) foil. (D). Pub. L. 94-455, §§ 1901(b)(11)(D), 1951(c)(2)(C), 2122(b)(3)(A), (C), 2124(a)(2), in text following subpar. D): struck out from the enumeration of sections reference to section 187 in two instances; inserted "(as in effect before its repeal by the Tax Reform Act of 1976)," following "section 168," in two instances; added provision for treatment for purposes of this section of any deduc- tion allowable under sect',on 190 as if it were a deduc- tion allowable for amortization; and inserted reference to section 191 in two instances, respectively. Subsec. (a)(3)(D). Pub. L. 94-455, §§ 2122(b)(3)(A), 2124(a)(2), inserted reference to sections 190 and 191. Page 697