[Code of Federal Regulations]
[Title 26, Volume 8]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.771-1]

[Page 591-592]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
Determination of Tax Liability--Table of Contents
 
Sec. 1.771-1  Effective date.

    (a) General rule. Except as provided in paragraph (b) or (c) of this 
section, the provisions of subchapter K, chapter 1 of the Code, shall 
apply to any taxable year of a partnership beginning after December 31, 
1954, and to any part of a partner's taxable year falling within such 
partnership taxable year. The provisions of the Internal Revenue Code of 
1939 relating to partnerships shall apply to any taxable year of a 
partnership beginning before January 1, 1955, and to any part of a 
partner's taxable year falling within such partnership taxable year. If 
a partnership and the partners are on different taxable years, 
subchapter K shall become effective at the same time both for the 
partnership and for the partners.
    (b) Special rules. Certain provisions of section 771 apply after 
specific dates in 1954, as follows:
    (1) Adoption of taxable year. Section 706(b) (relating to the 
adoption of taxable years by partners and partnerships), shall apply to 
any partnership which adopts or changes to, and any partner who changes 
to, a taxable year beginning on or after April 2, 1954. For the purpose 
of applying this subparagraph, the rules of section 708 (relating to the 
continuation of partnerships) shall apply. For example, if two or more 
partnerships merge after April 1, 1954, and the new partnership uses the 
taxable year of the partnership of which it is deemed to be the 
successor under section 708(b)(2)(A), it will not need prior approval to 
continue to use such taxable year even though such year may be different 
from the taxable years of the partners. Such a partnership is not 
``adopting'' or ``changing'' its taxable year.

[[Page 592]]

    (2) Property distributed by a partnership. Section 735(a), relating 
to the character of gain or loss on disposition of property distributed 
by a partnership to a partner, shall apply only to property distributed 
after March 9, 1954. Although a partnership whose taxable year begins 
before January 1, 1955, generally will be subject to the provisions of 
the Internal Revenue Code of 1939, any unrealized receivables or 
inventory items distributed by any such partnership after March 9, 1954, 
will be subject to the provisions of section 735(a), and the gain or 
loss on the subsequent disposition of such property will be ordinary 
gain or loss rather than capital gain or loss. In the case of property 
distributed before March 10, 1954, section 735(a) will not apply, even 
though the property is disposed of by the distributee partner after that 
date, unless the partnership elects under paragraph (c) of this section 
to apply section 735.
    (3) Unrealized receivables and inventory items. Section 751 
(providing for the realization of ordinary income on certain transfers 
or distributions of unrealized receivables or substantially appreciated 
inventory items) shall be applicable to any such transfer or 
distribution occurring after March 9, 1954. For the purpose of applying 
section 751 in the case of a taxable year beginning before January 1, 
1955, a partnership or partner may elect to treat as applicable any 
other section of subchapter K. See paragraph (f) of Sec. 1.751-1.
    (4) Partner receiving income in respect of a decedent. Section 753, 
which provides that the amount includible in the gross income of a 
successor in interest of a deceased partner under section 736(a) shall 
be considered income in respect of a decedent under section 691, shall 
apply only in the case of payments made with respect to decedents whose 
death occurred after December 31, 1954.
    (c) Optional treatment of certain distributions. (1) For a 
partnership taxable year beginning after December 31, 1953, and before 
January 1, 1955, a partnership may elect to apply the rules of certain 
sections of subchapter K with respect to current distributions made by 
the partnership in such year. These sections are 731, 732 (a), (c), and 
(e), 733, 735, and 751 (b), (c), and (d). If an election is made, it 
shall apply to the partnership and all its members for all current 
distributions made by the partnership during the taxable year. Such 
distributions shall also be subject to the rules of section 705 
(relating to determination of basis of a partner's interest), 752 
(relating to treatment of certain liabilities), and 761(d) (relating to 
the definition of liquidation of a partner's interest), to the extent 
that such sections apply to current distributions.
    (2) An election under this paragraph shall be made by a statement 
filed with the partnership return for the taxable year to which such 
election applies, or before August 23, 1956, whichever date is later. 
The statement shall be signed by all members of the partnership and the 
election once made shall be binding on the partnership and on all of its 
members.

                           INSURANCE COMPANIES

                        Life Insurance Companies

                         definition; tax imposed