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Unformatted text preview: Chapter C:10 Special Partnership Issues Discussion Questions C:10-1 A liquidating distribution. A current distribution is a distribution that does not terminate the partner's interest in the partnership, nor is the payment one of a series of payments intended to terminate the partner's interest in the partnership. A liquidating distribution is made with the intention of terminating the partner's entire interest in the partnership either with this payment or with a planned series of payments including this one. The January distribution to Javier is the first in a series of distributions that will terminate his interest in the partnership and, therefore, is a liquidating distribution. p. C:10-2. C:10-2 The basis of property in the hands of the distributee partner generally is a carryover of the property's adjusted basis in the partnership's hands immediately before the distribution. However, the basis of all property distributed to a partner cannot exceed the distributee partner's basis in his or her partnership interest immediately before the distribution, reduced by any cash or deemed cash payments (liability reduction) that she received as part of the distribution. Lia's basis will be $40,000 if the partnership's basis in the land prior to the distribution was $40,000 or more. Lia will take a carryover basis from the partnership if the partnership's basis for the parcel of land prior to the distribution was less than $40,000. pp. C:10-4 through C:10-7. C:10-3 The basis of a single asset received in a liquidating distribution is determined by two factors: the basis of the distributed property in the partnership's hands and the distributee partner's basis in his or her partnership interest prior to the distribution. However, the total basis to the distributee partner of the assets received generally will equal the partner's basis in the partnership interest immediately prior to the distribution. Because Mariel received a single asset that was not money, accounts receivable, or inventory, her basis will be $60,000 in the land regardless of what the partnership's basis in the land was prior to its distribution. pp. C:10-12 through C:10-14. C:10-4 Cindy's basis for the property she receives will be reduced to $4,000 from its $4,500 basis to the CDE Partnership because it is limited to Cindy's basis in her partnership interest before the distribution. Even though Cindy will hold the property as an investment, the sale of the inventory would generate ordinary income for five years from the date of the distribution. The sale of the capital asset would generate long-term capital gain that to most individual taxpayers is taxed at a maximum 15% marginal tax rate. pp. C:10-4 through C:10-7....
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This note was uploaded on 09/24/2008 for the course ACCT 72481 taught by Professor Backer during the Spring '08 term at CSU Fresno.
- Spring '08