Partnership liquidating distribution and example
Only Partner C recognizes a gain on the distribution (,000) since she received cash in excess of her partnership basis.A distribution may result in a recognized loss to a partner only where the partner's interest in the partnership is being completely liquidated and he or she receives only cash, unrealized receivables as defined in IRC Sec. cash-basis accounts receivable), or inventory as defined in IRC Sec. Loss in recognized to the extent the partner's basis in the partnership exceeds the amount of cash and basis of such other assets received in liquidation of the interest.The author provides the background on such basis adjustments and provides many examples to help understand this complex tax area. A more sensible and equitable approach would allow the IRC Sec.734 basis adjustment at the time the partnership incurs a definite legal obligation for future liquidation payments that are fixed as to amount and timing.In 1993, A and B receive respective liquidating distributions of Cash = ,000 and Greenacre (FMV ,000, Basis = ,000); recognizing losses of ,000 and zero, respectively. 754 election is in effect, the partnership must make a ,000 negative IRC Sec.734 basis adjustment to the remaining partnership assets with respect to each of the distributions. 734 basis adjustment is made immediately after the distribution and is allocated among the remaining assets in accordance with IRC Sec.By using the site, you consent to the placement of these cookies. Providing payroll services that comply with ever-changing regulations and meet evolving employee and employer demands is no easy task.
Partners A and B recognize gain of ,000 and zero, respectively, and (assuming a IRC Sec.
736(a), any gain or loss recognized by the partner is treated as having resulted from a sale or exchange of the partner's partnership interest (i.e., generally capital gain). 736(a) payments generally include payments (determined with or without regard to the income of the partnership) which are paid for either 1) unrealized receivables, or 2) partnership goodwill where payments for goodwill are not called for in the partnership agreement.
However, the Omnibus Budget Reconciliation Act of 1993 (OBRA '93) precludes IRC Sec.
Tax Treatment of Partnership Distributions IRC Sec.
731(a) (1) generally provides that a partner receiving a distribution of cash or other property from a partnership, recognizes gain only to the extent that cash distributed exceeds the partner's basis in his or her partnership interest immediately before the distribution.755, which generally requires that any positive or negative IRC Sec.