Partnership liquidating distributions property
Because the partnership is not a separate tax entity, any gains or losses pass through to the partners when the partnership liquidates.
Liquidating distributions might generate capital gains, ordinary income, a loss or no effect at all.
Partnerships allow multiple people to pool their assets together and conduct business.
When it comes time to part ways, the partnership distributes its assets back to the partners and dissolves.
Liquidating a partnership results in a gain or loss depending on how each partner’s distribution compares to his basis.
If the distribution exceeds his basis, he recognizes a gain.
R first reduces his ,000 outside basis by the ,000 cash distribution.
When the partnership liquidates, the partner can recover his entire basis tax-free.
704(c)(1)(B)); (3) the distribution is within seven years after a contribution of appreciated property (see Sec. He has never contributed property other than cash to the LLC.
737); or (4) the distribution is part of a disguised sale (see Sec. A loss may be recognized upon a distribution in liquidation of a member's interest if no property other than cash, unrealized receivables, and inventory is received. Nontaxable liquidating distribution of cash and property: Z LLC is liquidating. To liquidate his interest, Z distributes to R ,000 cash plus real property with a ,000 FMV.
Further complication arises because the “tax” partnership includes not only entities organized as general partnerships or limited partnerships (“LP”) under state law, but also the newer forms of limited liability partnerships (“LLP”), initially primarily for professionals, and the increasingly popular limited liability company (“LLC”). Adjustment to Partnership's Basis in Assets Under 734(b) 1.
The newer forms, particularly the LLC, have many more entity characteristics, particularly when full advantage of the freedom to contract that is part of the latest revisions of the governing statutes in most commercial states is taken into account, so that it is hard to distinguish them from corporations.