US Code

Public Law 119-73 (01/23/2026)

26 U.S.C. § 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 distribution,
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 distribution.

(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 partnership.

(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).

Pub. L. 102–486, title XIX, § 1937(a)106 Stat. 3032Pub. L. 103–465, title VII, § 741(b)108 Stat. 5009Pub. L. 104–188, title I, § 1704(j)(8)110 Stat. 1882Pub. L. 105–34, title X, § 1063(a)111 Stat. 947(Added , , ; amended , , ; , , ; , , .)

Editorial Notes

Amendments

Pub. L. 105–341997—Subsec. (b)(1). substituted “7 years” for “5 years”.

Pub. L. 104–188section 1937(a) of Pub. L. 102–486Section 1937(a) of Pub. L. 102–4861996— provided that , shall be applied as if “Subpart B” appeared instead of “Subpart C”. directed amendment of subpart C of this part by adding this section at the end thereof.

Pub. L. 103–465, § 741(b)(1)1994—Subsec. (c)(1). , amended last sentence generally. Prior to amendment, last sentence read as follows: “Except for purposes of determining the amount recognized under subsection (a), such increase shall be treated as occurring immediately before the distribution.”

Pub. L. 103–465, § 741(b)(2)Subsec. (e). , added subsec. (e).

Statutory Notes and Related Subsidiaries

Effective Date of 1997 Amendment

Pub. L. 105–34section 1063(b) of Pub. L. 105–34section 704 of this titleAmendment by applicable to property contributed to a partnership after , but not applicable to any property contributed pursuant to a written binding contract in effect on , and at all times thereafter before such contribution if such contract provides for the contribution of a fixed amount of property, see , set out as a note under .

Effective Date of 1994 Amendment

Pub. L. 103–465section 741(c) of Pub. L. 103–465section 731 of this titleAmendment by applicable to distributions after , and not applicable to certain distributions before , distributions in liquidation of partner’s interest, or distributions in complete liquidation of publicly traded partnerships, see , set out as a note under .

Effective Date

section 1937(c) of Pub. L. 102–486section 704 of this titleSection applicable to distributions on or after , see , set out as an Effective Date of 1992 Amendment note under .