Partnership 4 - Partnership Distributions

Question 1

What is current distribution also called?

Answer 1

Non-liquidating distribution.

Question 2

Non-liquidating distribution: How are G/L determined?

Answer 2

Generally no G/L recognized.

Question 3

Non-liquidating distribution: What are the order that assets are assumed to be distributed?

Answer 3

1. Cash.
2. Unrealized receivables and inventory (inventory is defined as all assets except for cash, capital assets, and Sec. 1231 assets).
3. Capital assets and Sec. 1231 assets.

Question 4

Non-liquidating distribution: when is the only time gain is recognized?

Answer 4

If the cash distributed exceeds the partner’s outside basis in the partnership immediately before the distribution.

Question 5

Non-liquidating distribution: what is the classification of gain recognized by the partner?

Answer 5

Capital gain.

Question 6

Non-liquidating distribution: property: what is the basis for the partner who receive it?

Answer 6

Usually carryover basis.

Question 7

Non-liquidating distribution: what’s the implication to the partner’s basis when he receives property?

Answer 7

The basis is reduced by the lower of;

basis of the property distributed or remaining basis in interest.

Question 8

Question:
A had partnership interest with AB of $50,000. Received a current distribution of $20,000 cash and property (AB to the partnership: $40,000, FMV: $35,000).
What amount of taxable gain must Jody report as a result of this distribution?
What is A’s basis in the partnership interest? What will be the basis in land for A?

Answer 8

Gain recognized : $0.

50,000 - 20,000 = 30,000.
Lower of AB (40,000) or remaining basis in interest (30,000) is 30,000. Therefore, $30,000-30,000=0

Ending basis is $0.
Basis in land: 30,000.

Question 9

Liquidating distribution (rule are the same): When is G/L recognized?

Answer 9

*Loss is recognized if:
The partner receives only cash, unrealized receivables, and inventory from the partnership.
The inside bases of these assets is less than the partner’s outside basis in the partnership immediately before the distribution
*The partner’s basis must be reduced to zero.

Question 10

Question:
A has a partnership interest (AB: $180,000).
Liquidating distribution:
Cash (Basis to partnership: 100,000, FMV: 100,000)
Real estate (Basis to partnership: 70,000, FMV: 96,000).
What is A’s basis in the real estate?

Answer 10

Interest (180,000) - Cash (100,000) = 80,000 - Land (70,000) = 10,000 …..This is incorrect because this is liquidating distribution and therefore, the end basis should be 0. If the loss rule is met, A can recognize $10,000 loss, but it is not met and can’t recognize a loss.
In the case, you must plug the value of land to make the end $0. 80,000 - Land (80,000) = $0 (basis in partnership).
Therefore, basis in land to A is $80,000.

Question 11

Non-liquidating distribution: what is the amount of basis in the asset the partner takes in?

Answer 11

Equals the amount used to reduce the partnership interest to $0.

Question 12

When a partner retires, what is the general tax implication re: liquidating distribution? Exception?

Answer 12

Same as other.
Except when the partner is a general partner in a service oriented partnership, then:
*Pmts for unrealized receivables and unstated goodwill are taxed as ordinary income.
*Remaining pmts are treated as being in exchange for partnership property.

Question 13

What is the classification of pmt made to a retired partner by a personal service partnership?

Answer 13

Payments made by a personal service partnership to a retired partner that are determined by partnership income are distributive shares of partnership income, regardless of the period over which they are paid.

Question 14

For tax purposes, when is a retiring partner who receives retirement payments ceases to be regarded as a partner?

Answer 14

Only after the partner’s entire interest in the partnership is liquidated.