Page:United States Statutes at Large Volume 68A.djvu/288

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INTERNAL REVENUE CODE OF 19 54

gain or loss from the sale or exchange of property other than a capital asset. (2) INVENTORY ITEMS.—Gain or loss on the sale or exchange by a distributee partner of inventory items (as defined in section 751 (d)(2)) distributed by a partnership shall, if sold or exchanged within 5 years from the date of the distribution, be considered gain or loss from the sale or exchange of property other than a capital asset. (b) HOLDING PERIOD FOR DISTRIBUTED PROPERTY.^—In determin-

ing the period for which a partner has held property received in a distribution from a jjartnership (other than for purposes of subsection (a)(2)), there shall be included the holding period of the partnership, as determined under section 1223, with respect to such property. SEC. 736. PAYMENTS TO A RETIRING PARTNER OR A DECEASED PARTNER'S SUCCESSOR IN INTEREST. (a) PAYMENTS CONSIDERED AS DISTRIBUTIVE SHARE OR G U A R ANTEED PAYMENT.—Payments made in liquidation of the interest of

a retiring partner or a deceased partner shall, except as provided in subsection (b), be considered— (1) as a distributive share to the recipient of partnership income if the amount thereof is determined with regard to the income of the partnership, or (2) as a guaranteed payment described in section 707(c) if the amount thereof is determined without regard to the income of the partnership. (b) PAYMENTS FOR INTEREST IN PARTNERSHIP.— (1) GENERAL RULE.—Payments made in liquidation of the in-

terest of a retiring partner or a deceased partner shall, to the extent such payments (other than payments described in paragraph (2)) are determined, under regulations prescribed by the Secretary or his delegate, to be made in exchange for the interest of such partner in partnership property, be considered as a distribution by the partnership and not as a distributive share or guaranteed payment under subsection (a). (2) SPECIAL RULES.^—For purposes of this subsection, payments in exchange for an interest in partnership property shall not include amounts paid for— (A) unrealized receivables of the partnership (as defined in section 751(c)), or (B) good will of the partnership, except to the extent that the partnership agreement provides for a payment with respect to good will. Subpart C—Transfers of Interests in a Partnership Sec. 741. Recognition and character of gain or loss on sale or exchange. Sec. 742. Basis of transferee partner's interest. Sec. 743. Optional adjustment to basis of partnership property. SEC. 741. RECOGNITION AND CHARACTER OF GAIN OR LOSS ON SALE OR EXCHANGE.

In the case of a sale or exchange of an interest in a partnership, gain or loss shall be recognized to the transferor partner. Such gain or § 735(a)(1)

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