The Implementation Of The Internal Revenue Code Of 1954

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Section 751 provides that the amount of any money received by a selling partner in exchange for all or a part of his interest in the partnership that is attributable to unrealized receivables of the partnership, substantially appreciated inventory items of the partnership, or ordinary income depreciation recapture under Sections 1245 or 1250, is considered as an amount realized from the sale or exchange of property other than a capital asset. Prior to the implementation of the Internal Revenue Code of 1954, the character of gain produced by the sale of a partnership interest was uncertain. It was not clear if the sale should be viewed as a sale of a single capital asset, or the sale of undivided interests in partnership assets which…show more content…
The items identified as potentially causing ordinary income or loss are usually referred to as “hot assets,” while all other assets are referred to as “cold assets.” Subsection (b) regarding the distributions in redemption of the partnership interests that is treated as a sales or exchanges; this Subsection was enacted mainly to be the backstop to Section 751(a). This Subsection applies to any partner receives a distribution represents a disproportionate share of partnership’s “hot assets” or “cold assets.” Section 751(b) treats this disproportionate distribution as a sale or exchange between the distributee partner and the partnership. Subsection (c) regarding the definition of “unrealized receivables”; Section 751(c) defined the unrealized receivable as any rights to payment for goods delivered, or to be delivered, to the extent that their proceeds would be treated as amounts received from the sale or exchange of property other than a capital asset, or services rendered, or to be rendered. Finally Subsection (d) was enacted for the definition of “Inventory items”; Section 751(d) originally defined “substantially appreciated inventory” as an inventory whose fair market value exceeds 120% of the basis of such property in the
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