TREATMENT OF DISTRIBUTIONS BY PARTNERSHIPS OF CONTRIBUTED PROPERTY.

SEC. 7642. TREATMENT OF DISTRIBUTIONS BY PARTNERSHIPS OF CONTRIBUTED PROPERTY. (a) General Rule.—Subsection (c) of section 704 (relating to contributed property) is amended to read as follows: 103 STAT. 2380 “(c) Contributed Property.— “(1) In general.— Under regulations prescribed by the Secretary— “(A) income, gain, loss, and deduction with respect to property contributed to the partnership by a partner shall be shared among the partners so as to take account of the variation between the basis of the property to the partnership and its fair market value at the time of contribution, and “(B) if any property so contributed is distributed by the partnership (other than to the contributing partner) within 5 years of being contributed— “(i) the contributing partner shall be treated as recognizing gain or loss (as the case may be) from the sale of such property in an amount equal to the gain or loss which would have been allocated to such partner under subparagraph (A) by reason of the variation described in subparagraph (A) if the property had been sold at its fair market value at the time of the distribution, “(ii) the character of such gain or loss shall be determined by reference to the character of the gain or loss which would have resulted if such property had been sold by the partnership to the distributee, and “(iii) appropriate adjustments shall be made to the adjusted basis of the contributing partner’s interest in the partnership and to the adjusted basis of the property distributed to reflect any gain or loss recognized under this subparagraph. “(2) Special rule for distributions where gain or loss would not be recognized outside partnerships.— Under regulations prescribed by the Secretary, if— “(A) property contributed by a partner (hereinafter referred to as the ‘contributing partner’) is distributed by the partnership to another partner, and “(B) other property of a like kind (within the meaning of section 1031) is distributed by the partnership to the contributing partner not later than the earlier of— “(i) the 180th day after the date of the distribution described in subparagraph (A), or “(ii) the due date (determined with regard to extensions) for the contributing partner’s return of the tax imposed by this chapter for the taxable year in which the distribution described in subparagraph (A) occurs, then to the extent of the value of the property described in subparagraph (B), paragraph (1)(B) shall be applied as if the contributing partner had contributed to the partnership the property described in subparagraph (B). “(3) Other rules.—Under regulations prescribed by the Secretary, rules similar to the rules of paragraph (1) shall apply to contributions by a partner (using the cash receipts and disbursements method of accounting) of accounts payable and other accrued but unpaid items. Any reference in paragraph (1) or (2) to the contributing partner shall be treated as including a reference to any successor of such partner.” 103 STAT. 2381 (b) Effective Date.—The amendment made by subsection (a) shall apply in the case of property contributed to the partnership after October 3, 1989, in taxable years ending after such date.