However, the legislative history to I.R.C. В§ 721(b) imposes no diversification requirement. Interestingly, the actual statutory language of I.R.C. However, if a plan, which exists at the time of the transfer, changes circumstances after the transfer, then the determination should encompass the later circumstances. The timing of the determination of whether a partnership is an investment partnership is generally made by examining the circumstances in existence immediately after the transfer at issue.

Stocks and securities are considered readily marketable if вЂњthey are part of a class of stock or securities which is traded on a securities exchange or traded or quoted regularly in the over-the-counter market.вЂќ Readily marketable stocks or securities include вЂњconvertible debentures, convertible preferred stock, warrants, and other stock rights if the stock for which they may be converted or exchanged is readily marketable.вЂќ Further, stocks and securities are considered held for investment unless they are вЂњ(i) held primarily for sale to customers in the ordinary course of business, or (ii) used in the trade or business of banking, insurance, brokerage, or a similar trade or business.вЂќ (i) money, (ii) stocks and other equity interests in a corporation, evidences of indebtedness, options, forward or futures contracts, notional principal contracts and derivatives, (iii) any foreign currency, (iv) any interest in a real estate investment trust, a common trust fund, a regulated investment company, a publicly-traded partnership (as defined in section 7704(b)) or any other equity interest (other than in a corporation) which pursuant to its terms or any other arrangement is readily convertible into, or exchangeable for, any asset described in any preceding clause, this clause or clause (v) or (viii), (v) except to the extent provided in regulations prescribed by the Secretary, any interest in a precious metal, unless such metal is used or held in the active conduct of a trade or business after the contribution, (vi) except as otherwise provided in regulations prescribed by the Secretary, interest in any entity if substantially all of the assets of such entity consist (directly or indirectly) of any assets described in any preceding clause or clause (viii), (vii) to the extent provided in regulations prescribed by the Secretary, any interest in any entity not described in clause (vi), but only to the extent of the value of such interest that is attributable to assets listed in clauses (i) through (v) or clause (viii), or (viii) any other asset specified in regulations prescribed by the Secretary. The following assets are treated as stocks and securities: The 80% test requires a determination about whether the assets are (1) held for investment and (2) readily marketable stocks or securities. В§ 1001 on the transfer of property in exchange for an interest in the newly organized partnership. If such a transfer arises, then the exception to the nonrecognition rule applies and the transferors will recognize gain under I.R.C. Thus, a transfer to an investment partnership only occurs when both the diversification test and investment test are satisfied. the transferee is (a) a regulated investment company, (b) a real estate investment trust, or (c) a corporation more than 80 percent of the value of whose assets (excluding cash and nonconvertible debt obligations from consideration) are held for investment and are readily marketable stocks or securities, or interests in regulated investment companies or real estate investment trusts. the transfer results, directly or indirectly, in diversification of the transferorвЂ™s interest and Under the Treasury Regulations, a transfer of property to an investment partnership occurs when: В§ 351 shifts the analysis to the transfer rules for corporations to determine if the transferee partnership qualifies as an investment company ( i.e., an investment partnership). В§ 351) if the partnership were incorporated. В§ 721(b), the general nonrecognition rule will not apply to gain realized on a transfer of property to a partnership that would be treated as an investment company (within the meaning of I.R.C. While this nonrecognition rule is a useful instrument in the tax practitionerвЂ™s toolbox, the ruleвЂ™s glamor often overshadows an important exception. Thus, no gain is recognized to a partnership or to any of its partners because of a contribution of property to the partnership in exchange for an interest in the partnership. The formation of a partnership is generally a nonrecognition transaction for both the contributing partner and the newly created firm.

Irc 721