Unit 11: Partnership Distributions and Liquidations

Question 1

Partnership distributions may include the following:

Answer 1

• Distributions of the partnership’s earnings for the current or prior year
• A withdrawal by a partner in anticipation of the current year’s earnings
• A complete or partial liquidation of a partner interest
• A distribution to all partners in complete liquidation of the partnership

Question 2

What are hot assets?

Answer 2

Ordinary income-producing assets. Two main examples are inventory and accounts receivable

Question 3

If a partner receives a distribution of hot assets, how is it taxed?

Answer 3

As ordinary income Or loss

Question 4

If a partner receives a distribution of inventory and holds it for at least 5 years, then, when it’s sold, it will be treated as:

Answer 4

A capital gain if the capital assets were capital assets in the hands of the partner