ACCT6921 - Code Section Discussion 2.docx - ACCT6921 Code Section Discussion 2 721 Nonrecognition of gain or loss on contribution(a General rule No gain

ACCT6921 - Code Section Discussion 2.docx - ACCT6921 Code...

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ACCT6921 – Code Section Discussion 2 § 721 Nonrecognition of gain or loss on contribution. (a) General rule. No gain or loss shall be recognized to a partnership or to any of its partners in the case of a contribution of property to the partnership in exchange for an interest in the partnership. (b) Special rule. Subsection (a) shall not apply to gain realized on a transfer of property to a partnership which would be treated as an investment company (within the meaning of section 351 ) if the partnership were incorporated. (c) Regulations relating to certain transfers to partnerships. The Secretary may provide by regulations that subsection (a) shall not apply to gain realized on the transfer of property to a partnership if such gain, when recognized, will be includible in the gross income of a person other than a United States person. (d) Transfers of intangibles. For regulatory authority to treat intangibles transferred to a partnership as sold, see section 367(d)(3) . Reg § 1.721-1. Nonrecognition of gain or loss on contribution. (b) (1) Normally, under local law, each partner is entitled to be repaid his contributions of money or other property to the partnership (at the value placed upon such property by the partnership at the time of the contribution) whether made at the formation of the partnership or subsequent thereto. To the extent that any of the partners gives up any part of his right to be repaid his contributions (as distinguished from a share in partnership profits) in favor of another partner as compensation for services (or in satisfaction of an obligation), section 721 does not apply. The value of an interest in such partnership capital so transferred to a partner as compensation for services constitutes income to the partner under section 61. The amount of such income is the fair market value of the interest in capital so transferred, either at the time the transfer is made for past services, or at the time the services have been rendered where the transfer is conditioned on the completion of the transferee's future services. The time when such income is realized depends on all the facts and circumstances, including any substantial restrictions or conditions on the compensated partner's right to withdraw or otherwise dispose of such interest. To the extent that an interest in capital representing compensation for services rendered by the decedent prior to his death is transferred after his death to the decedent's successor in interest, the fair market value of such interest is income in respect of a decedent under section 691. (2) To the extent that the value of such interest is: (i) compensation for services rendered to the partnership, it is a guaranteed payment for services under section 707(c); (ii) compensation for
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services rendered to a partner, it is not deductible by the partnership, but is deductible only by such partner to the extent allowable under this chapter.
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  • Spring '14
  • DanielL.Schisler
  • Corporate Finance, Restricted stock, Concentrated stock

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