§734. Optional adjustment to basis of undistributed partnership property

(a) General rule

The basis of partnership property shall not be adjusted as the result of a distribution of property to a partner unless the election, provided in section 754 (relating to optional adjustment to basis of partnership property), is in effect with respect to such partnership.

(b) Method of adjustment

In the case of a distribution of property to a partner, a partnership, with respect to which the election provided in section 754 is in effect, shall-

(1) increase the adjusted basis of partnership property by-

(A) the amount of any gain recognized to the distributee partner with respect to such distribution under section 731(a)(1), and

(B) in the case of distributed property to which section 732(a)(2) or (b) applies, the excess of the adjusted basis of the distributed property to the partnership immediately before the distribution (as adjusted by section 732(d)) over the basis of the distributed property to the distributee, as determined under section 732, or

(2) decrease the adjusted basis of partnership property by-

(A) the amount of any loss recognized to the distributee partner with respect to such distribution under section 731(a)(2), and

(B) in the case of distributed property to which section 732(b) applies, the excess of the basis of the distributed property to the distributee, as determined under section 732, over the adjusted basis of the distributed property to the partnership immediately before such distribution (as adjusted by section 732(d)).

Paragraph (1)(B) shall not apply to any distributed property which is an interest in another partnership with respect to which the election provided in section 754 is not in effect.

(c) Allocation of basis

The allocation of basis among partnership properties where subsection (b) is applicable shall be made in accordance with the rules provided in section 755.

(Aug. 16, 1954, ch. 736, 68A Stat. 247 ; July 18, 1984, Pub. L. 98–369, div. A, title I, §78(a), 98 Stat. 597 .)

Amendments

1984-Subsec. (b). Pub. L. 98–369 inserted at end "Paragraph (1)(B) shall not apply to any distributed property which is an interest in another partnership with respect to which the election provided in section 754 is not in effect."

Effective Date of 1984 Amendment

Section 78(b) of Pub. L. 98–369 provided that: "The amendment made by subsection (a) [amending this section] shall apply to distributions after March 1, 1984, in taxable years ending after such date."

Section Referred to in Other Sections

This section is referred to in sections 197, 731, 754, 755 of this title.