(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
(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).
(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).