Liquidating distribution two years
Remember, the partnership had one asset, property 1, with appreciation of ,000.
If S would recognize a ,000 loss on a liquidation of the partnership that follows the distribution to R, then R should be required to recognize ,000, rather than ,000, of gain on a subsequent sale of property 1, so that the total gain recognized by both parties equals the appreciation inside the partnership of ,000. When the pre-distribution bases of the distributed properties (other than money) exceed the partner’s remaining outside basis after reduction for money received, the bases of the properties must be reduced, and this reduction must be allocated among the distributed properties. The total basis of the distributed properties is 0 ( ), A’s remaining outside basis after reduction for money received is 0 (0-).
For the past few months, I've been traveling around the country teaching the finer points of the Affordable Care Act and the repair regulations in such exotic locales as Hartford, Grand Junction and Billings, which is every bit as depressing as it sounds.
But now that I'm settled in, I'm excited to get back to providing what no one ever really asked for: an in-depth look at a narrow area of the tax law. As you will see, the regime governing partnership distributions is drastically different from the one governing corporate distributions.
The partnership then takes ,000 of the ,000 of cash and purchases property 1.
No gain is recognized by R because the cash received (,000) does not exceed R's outside basis in his partnership interest. In this example, at first blush it appears that more than the ,000 of gain inherent in the partnership's property 1 will be recognized when R sells the property.
R has taken a basis of ,000, so that when he sells property 1 for its FMV of ,000, he will recognize ,000 of gain.
Under Section 731(b), a partnership that makes a current distribution does not recognize any gain or loss, and a partner who receives a current distribution cannot recognize a loss.
The partner will recognize gain, however, to the extent that the money he receives in the distribution exceeds his basis in his partnership interest (also known as "outside basis") immediately before the distribution.