v Net precontribution gain is determined without regard to section 704c2 and

V net precontribution gain is determined without

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(v) Net precontribution gain is determined without regard to section 704(c)(2) and Treas. Reg. 1.704-4(d)(3) if the property contributed by the distributee partner is not actually distributed to another partner in the section 737 distribution. Treas. Reg. § 1.737-1(c)(2)(v). 5. Character of gain a. Character of the section 737 gain is determined by, and is proportionate to, the character of the partner's net precontribution gain. Treas. Reg. § 1.737-1(d). b. All gains and losses on section 704(c) property are taken into account in determining net precontribution gain according to their character. Id. c. Character is determined at the partnership level and any character with a net negative amount is disregarded. Id. d. Character is determined as if the section 704(c) property had been sold by the partnership to an unrelated third party at the time of the distribution and includes any item that would have been taken into account separately by the contributing partner under section 702(a) and Treas. Reg. § 1.702-1(a).
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6. Exceptions a. Section 737 does not apply to a deemed distribution of partnership interests resulting from a termination of a partnership under section 708(b)(1)(B). Treas. Reg. § 1.737-2(a).(i) A subsequent distribution of property by the new partnership to a partner who was a partner in the terminated partnership is subject to section 737 to the same extent that a distribution fromthe terminated partnership would have been subject to section 737. Id.(ii) This rule is applicable to terminations occurring on or after May 9, 1997 but may apply to terminations A occurring on or after May 9, 1996 if the partnership and its partners apply this rule to the termination in a consistent manner. Id.b. Section 737 does not apply to a transfer by a partnership (transferor partnership) of all of its assets and liabilities to a new partnership (transferee partnership) in a section 721 exchange followed by a distribution of the transferee partnership interests in liquidation of the transferor partnership as part of the same plan or arrangement. Treas. Reg.§ 1.737-2(b)(1).c. Section 737 does not apply to a transfer by a transferor partnership of all of the section 704(c) property contributed by a partner to a transferee partnership in a section 721 exchange followed by a distribution of the transferee partnership interests (and no other property) to the partner who contributed the section 704(c) property in complete liquidation of such partner's interest. Treas. Reg. § 1.737-2(b)(2).d. Section 737 applies to a subsequent distribution by the transferee partnership to one of its partners that was formerly a partner of the transferor partnership to the same extent section 737 would have applied to a distribution from the transferor partnership. Treas. Reg. § 1.737-2(b)(3).e. Section 737 does not apply to an incorporation of a partnership by any method (other than a distribution to the partners followed by a contribution of the property to a corporation) provided the partnership is liquidated as part of the transaction. Treas. Reg. § 1.737-2(c). 7. Basis adjustments; Recovery rules a. Distributee Partner's basis (i) The distributee partner's basis in his partnership interest is increased by the section 737 gain but not for purposes of
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