A nonliquidating distribution
Hi, Can someone explain the difference between liquidating and nonliquidating distribution?I understand a partner recognizes no loss when liquidating distribution is received. If a partner receives liquidating distribution, is the partner no longer partner? All right, let me joggle my dusty memory to recall this concept.In case of non-liquidating distribution, basis of property received is lower of property adjusted basis or partner's basis less cash received (in other words, you don't have to zero-out the partner's basis mandatorily).On a side note, partner can recognize loss in liquidating distribution in a specific situation when complete liquidation of partnership interest is through receipt of money, unrealized receivables or inventory (aka hot assets) Thats a funny questions that they don't talk about in the book.However, I do not think there is any kind of trick here.If a partner receives a liquidating distribution then he is liquidated and no longer a partner.On December 31, 2011, after receipt of his share of\r\npartnership income, Clark sold his interest in a limited partnership\r\nfor ,000 cash and relief of all liabilities. How much long-term capital gain should Roe\r\nreport in 2012 on the sale of his partnership interest? On that\r\ndate, the adjusted basis of Clark\u2019s partnership interest was\r\n,000, consisting of his capital account of ,000 and his\r\nshare of the partnership liabilities of ,000. Ordinary gain of ,000.\t Debt relief\t 25,000\r\nc. Capital gain of ,000.\t\t Basis -40,000\r\n\t\t\t\t\t\t Gain\t15,000\r\n\r\n Sale of Partnership Interests \u2013 Hot Assets\r\n\r\n Unrealized receivables generally refers to the receivables of cash method taxpayers because the income has been earned but not yet included in gross income.
If the corporation distributes its assets for later sale by the shareholders, the assets generally “come out” of the corporation with a basis equal to FMV (and with the related recognition of gain or loss under Sec. 331, a liquidating distribution is considered to be full payment in exchange for the shareholder’s stock, rather than a dividend distribution, to the extent of the corporation’s earnings and profits (E&P).The shareholders generally recognize gain (or loss) in an amount equal to the difference between the fair market value (FMV) of the assets received (whether they are cash, other property, or both) and the adjusted basis of the stock surrendered.Learning Objectives\r\n\r\n Determine the tax consequences to the buyer and seller of the disposition of a partnership interest, including the amount and character of gain or loss recognized\r\n List the reasons for distributions, and compare operating and liquidating distributions\r\n Determine the tax consequences of proportionate operating distributions\r\n Determine the tax consequences of proportionate liquidating distributions\r\n Explain the rationale for special basis adjustments, determine when they are necessary, and calculate the special basis adjustment for dispositions and distributions\r\n\r\n Sales of Partnership Interests\r\n\r\n Raise unique issues because of the flow-through nature of the entity\r\n If tax rules follow an entity approach, the interest is considered a separate asset and sale of partnership interest would be very similar to the sale of corporate stock\r\n If tax rules use the aggregate approach, the disposition represents a sale of the partner\u2019s share of each of the partnership\u2019s assets\r\n\r\n Sales of Partnership Interests\r\n\r\n Seller Issues\r\n Primary tax concern is calculating the amount and character of gain or loss on the sale\r\n Selling partner determines gain or loss as the difference between the amount realized and his\/her outside basis in the partnership\r\n Hot Assets \r\n The term generally includes unrealized receivables and appreciated inventory. Roe\u2019s\r\nadjusted basis in Roe & Doe at June 30, 2012, was ,500\r\nbefore apportionment of any 2012 partnership income.\r\n Roe\u2019s distributive share of partnership income up to June 30,\r\n2012, was ,500. Partner will recognize gain to the extent of the excess\r\n\r\n Current distribution\r\n\r\n Curry\u2019s adjusted basis in Vantage Partnership was\r\n,000 at the time he received a nonliquidating\r\ndistribution of ,000 cash. A selling partner must recognize ordinary income to the extent of the partner\u2019s share of the appreciation in hot assets.\r\n\r\n Sale of partnership interest\r\n\r\n52. Roe acquired his interest in the partnership\r\nin 2007. What amount of gain was\r\nrecognized by Curry as a result of the cash\r\ndistribution?