(a) General rule. — Any increase or decrease in the adjusted basis of partnership property under § 30354(b) of this title (relating to the optional adjustment to the basis of undistributed partnership property) or § 30363(b) of this title (relating to the optional adjustment to the basis of partnership property in case of transfer of an interest in a partnership) shall, except as provided in subsection (b), be allocated:(1) In a manner which has the effect of reducing the difference between the fair market value and the adjusted basis of partnership properties, or(2) in any other manner permitted by regulations prescribed by the Secretary.(b) Special rule. — In applying the allocation rules provided in subsection (a), increases or decreases in the adjusted basis of partnership property arising from a distribution of, or a transfer of an interest attributable to, property consisting of:(1) Capital assets and property described in § 30141(a)(1)(B) of this title, or(2) any other property of the partnership, shall be allocated to partnership property of a like character except that the basis of any such partnership property shall not be reduced below zero.

le, or(2) any other property of the partnership, shall be allocated to partnership property of a like character except that the basis of any such partnership property shall not be reduced below zero. If, in the case of a distribution, the adjustment to basis of property described in clause (1) or (2) is prevented by the absence of such property or by insufficient adjusted basis for such property, such adjustment shall be applied to subsequently acquired property of a like character, in accordance with regulations prescribed by the Secretary.(c) No allocation of basis decrease to stock of corporate partner. — In making an allocation under subsection (a) of any decrease in the adjusted basis of partnership property under § 30354(b) of this title:(1) No allocation shall be made to stock in a corporation (or any person related (within the meaning of §§ 30137(b) and 30337(b)(1) of this title) to such corporation) which is a partner in the partnership, and(2) any amount not allocable to stock by reason of clause (1) shall be allocated under subsection (a) to other partnership property.Gain shall be recognized to the partnership to the extent that the amount required to be allocated

stock by reason of clause (1) shall be allocated under subsection (a) to other partnership property.Gain shall be recognized to the partnership to the extent that the amount required to be allocated under clause (2) to other partnership property exceeds the aggregate adjusted basis of such other property immediately before the allocation required by clause (2). History —Jan. 31, 2011, No. 1, § 1075.05, retroactive to Jan. 1, 2011.