Reg. § 1.721(c)-2 Recognition of gain on certain contributions of property to partnerships with related foreign partners.
(a) Scope This section provides the general operative rules that override section nonrecognition of gain upon a contribution of section property to a section partnership. of this section provides the general rule that nonrecognition of gain under section does not apply to a contribution of section property to a section partnership. of this section provides a de minimis exception to the application of the general rule in of this section. of this section provides rules for identifying a section partnership when a partnership in which a U.S. transferor is a direct or indirect partner contributes property to another partnership. of this section provides the dates of applicability. For definitions that apply for purposes of this section, see .
(b) General rule for contributions of section 721(c) property Except as provided in this , of this section, and (describing the gain deferral method), nonrecognition under section will not apply to gain realized by the contributing partner upon a contribution of section property to a section partnership. This does not apply to a direct contribution by a U.S. transferor if the U.S. transferor and related persons with respect to the U.S. transferor do not own 80 percent or more of the interests in partnership capital, profits, deductions, or losses.
(c) De minimis exception of this section will not apply with respect to contributions to a section partnership during a taxable year of the section partnership for which the sum of the built-in gain with respect to all section property contributed in that taxable year does not exceed $1 million. If, pursuant to the last sentence of of this section, a direct contribution of property to the section partnership by a U.S. transferor is not subject to of this section, then such contribution is not taken into account for purposes of this .
(d) Rules for identifying a section 721(c) partnership when a partnership contributes property to another partnership
(1) Partnership look-through rule If a U.S. transferor is a direct or indirect partner in a partnership (upper-tier partnership) and the upper-tier partnership contributes all or a portion of its property to another partnership (lower-tier partnership), then, for purposes of determining if the lower-tier partnership is a section partnership, the U.S. transferor is treated as contributing to the lower-tier partnership its share of the property actually contributed by the upper-tier partnership to the lower-tier partnership.
(2) Exception for a technical termination of a partnership of this section will not apply to a deemed contribution that occurs as a result of a termination of a partnership described in section (technical termination). If a partnership is a section partnership immediately before a technical termination, see (which treats technical terminations as successor events in certain circumstances).
(e) Applicability dates
(1) In general Except as provided in and of this section, this section applies to contributions occurring on or after August 6, 2015, and to contributions that occurred before August 6, 2015 resulting from an entity classification election made under that was effective on or before August 6, 2015 but was filed on or after August 6, 2015.
(2) Certain provisions Except as provided in of this section, the final sentence of of this section, the final sentence of of this section, and of this section apply to contributions occurring on or after January 18, 2017, and to contributions that occurred before January 18, 2017 resulting from an entity classification election made under that was effective on or before January 18, 2017 but was filed on or after January 18, 2017.
(3) Election to apply the provisions described in paragraph (e)(2) of this section retroactively The final sentence of of this section, the final sentence of of this section, and of this section may, by election, be applied to a contribution that occurred on or after August 6, 2015 but before January 18, 2017, and to a contribution that occurred before August 6, 2015 resulting from an entity classification election made under that was effective on or before August 6, 2015 but was filed on or after August 6, 2015. The election must have been made by applying the final sentence of of this section, the final sentence of of this section, or of this section, as applicable, to the contribution on a timely filed original return (including extensions) or an amended return filed no later than July 18, 2017.
[85 FR 3841, Jan. 23, 2020]