26 U.S.C. § 737 : US Code - Section 737: Recognition of precontribution gain in case of certain distributions to contributing partner

    (a) General rule
      In the case of any distribution by a partnership to a partner,
    such partner shall be treated as recognizing gain in an amount
    equal to the lesser of - 
        (1) the excess (if any) of (A) the fair market value of
      property (other than money) received in the distribution over (B)
      the adjusted basis of such partner's interest in the partnership
      immediately before the distribution reduced (but not below zero)
      by the amount of money received in the distribution, or
        (2) the net precontribution gain of the partner.

    Gain recognized under the preceding sentence shall be in addition
    to any gain recognized under section 731. The character of such
    gain shall be determined by reference to the proportionate
    character of the net precontribution gain.
    (b) Net precontribution gain
      For purposes of this section, the term "net precontribution gain"
    means the net gain (if any) which would have been recognized by the
    distributee partner under section 704(c)(1)(B) if all property
    which - 
        (1) had been contributed to the partnership by the distributee
      partner within 7 years of the distribution, and
        (2) is held by such partnership immediately before the

    had been distributed by such partnership to another partner.
    (c) Basis rules
      (1) Partner's interest
        The adjusted basis of a partner's interest in a partnership
      shall be increased by the amount of any gain recognized by such
      partner under subsection (a). For purposes of determining the
      basis of the distributed property (other than money), such
      increase shall be treated as occurring immediately before the
      (2) Partnership's basis in contributed property
        Appropriate adjustments shall be made to the adjusted basis of
      the partnership in the contributed property referred to in
      subsection (b) to reflect gain recognized under subsection (a).
    (d) Exceptions
      (1) Distributions of previously contributed property
        If any portion of the property distributed consists of property
      which had been contributed by the distributee partner to the
      partnership, such property shall not be taken into account under
      subsection (a)(1) and shall not be taken into account in
      determining the amount of the net precontribution gain. If the
      property distributed consists of an interest in an entity, the
      preceding sentence shall not apply to the extent that the value
      of such interest is attributable to property contributed to such
      entity after such interest had been contributed to the
      (2) Coordination with section 751
        This section shall not apply to the extent section 751(b)
      applies to such distribution.
    (e) Marketable securities treated as money
          For treatment of marketable securities as money for purposes
        of this section, see section 731(c).