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TITLE 26-INTERNAL REVENUE CODE (c) Ordinary income (1) General rule Except as otherwise provided in this sec. tion, if farm recapture property (as defined in subsection (e)(1)) is disposed of during a tax- able year beginning after December 31, 1969, the amount by which- (A) in the case of a sale, exchange, or in- voluntary conversion, the amount realized, or (B) in the case of any other disposition, the fair market value of such property, exceeds the adjusted basis of such property shall be treated as ordinary income. Such gain shall be recognized notwithstanding any other provision of this subtitle. (2) Limitation (A) Amount in excess deductions account The aggregate of the amounts treated under paragraph (1) as ordinary income for any taxable year shall not exceed the amount in the excess deductions account at the close of the taxable year after applying subsection (b)(3)(A). (B) Dispositions taken into account If the aggregate of the amounts to which paragraph (1) applies is limited by the ap- plication of subparagraph (A), paragraph (1) shall apply in respect of such disposi- tions (and in such amounts) as provided under regulations prescribed by the Secre- tary. (C) Special rule for dispositions of land In applying subparagraph (A), any gain on the sale or exchange of land shall be taken into account only to the extent of its potential gain (as defined in subsection (e)(5)). (d) Exceptions and special rules (1) Gifts Subsection (c) shall not apply to a disposi- tion by gift. (2) Transfer at death Except as provided in section 691 (relating to income in respect of a decedent), subsec- tion (c) shall not apply to a transfer at death. (3) Certain corporate 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 sections 332, 351, 361, 371(a), or 374(a), then the amount of gain taken into account by the transferor Under subsection (c)(1) shall not exceed the amount of gain recognized to the transferor on the transfer of such property (determined with- out regard to this section). This paragraph shall not apply to a disposition to an organi- zation (other than a cooperative described in section 521) which is exempt from the tax im- posed by this chapter. (4) Like kind exchanges; involuntary conversion, 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 (c)(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 with respect to which no gain is rec- ognized under subparagraph (A), but which is not farm recapture property. (5) Partnerships (A) In general In the case of a partnership, each partner shall take into account separately his dis- tributive share of the partnership's farm net losses, gains from dispositions of farm recapture property, and other items in ap- plying this section to the partner. (B) Transfers to partnerships If farm recapture property is contributed to a partnership and gain (determined with- out regard to this section) is not recognized under section 721, then the amount of gain taken into account by the transferor under subsection (c)(1) shall not exceed the excess of the fair market value of farm recapture property transferred over the fair market value of the partnership interest attribut- able to such property. If the partners'ilp agreement provides for an allocation of gain to the contributing partner with respect to farm recapture property contributed to the partnership (as provided in section 704(c)(2)), the partnership interest of the contributing partner shall be deemed to be attributable to such property. (6) Property transferred to controlled corporations Except for transactions described in subsec- tion (b)(5)(A), in the case of a transfer, de- scribed in paragraph (3), of farm recapture property to a corporation, stock or securities received by a transferor in the exchange shall be farm recapture property to the extent at- tributable to the fair market value of farm re- capture property (or, in the case of land, if less, the adjusted basis plus the potential gain (as defined in subsection (e)(5)) on farm re- capture property) contributed to the corpora- tion by such transferor. (e) Definitions For purposes of this section- (1) Farm recapture property The term "farm recapture property" means- (A) any property (other than section 1250 property) described in paragraph (1) (relat- ing to business property held for more than 9 months), (3) (relating to livestock), or (4) (relating to an unharvested crop) of section 1231(b) which is or has been used in the trade or business of farming by the taxpay- er or by a transferor in a transaction de- scribed in subsection (b)(5), and (B) any property the basis of which in the hands of the taxpayer is determined with reference to the adjusted basis of property which was farm recapture property in the hands of the taxpayer within the meaning of subparagraph (A). § 1251 Page 714