2008 CCH Comp Topics Ch20

2008 CCH Comp Topics Ch20 - Chapter 20...

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Unformatted text preview: Chapter 20 Partnerships—Distributions, Sales, and Exchanges ©2007 CCH. All Rights Reserved. 4025 W. Peterson Ave. Chicago, IL 60646-6085 1 800 248 3248 www.CCHGroup.com CCH Federal Taxation Distributions—General Effect on Partners How is “amount distributed” to owners computed? Cash + debt relief [i.e., for purposes of determining gain, only cash + debt relief are subject to capital gains. Other property received by a partner is tax-free.] What is the owners’ tax treatment for the “amount distributed?” Cash + debt relief: Tax-free up to outside basis; Capital gain to a partner on the excess of cash or debt relief in excess of outside basis. (Loss is never recognized.) Other property: Tax-free. Chapter 20, Exhibit 1a CCH Federal Taxation What is the basis of property distributed to an owner? Same as the partnership’s inside basis. [However, if a partner’s outside basis is less than the partnership’s inside basis in property distributed to a partner, then the partner’s basis of property received is taken from his outside basis, not from the partnership’s inside basis. This makes sense, given that a partner’s outside basis must be reduced by the “amount” of distributions and that it cannot be negative] Chapter 20, Exhibit 1b Distributions—General Effect on Partners CCH Federal Taxation Distributions—General Rules Code Sections 731 to 733 The rules indicated below assume that the partnership DOES NOT make a disproportionate distribution of the Code Sec. 751 “hot” assets. What is a distribution? A distribution is a transfer of value from the P/S to a partner in reference to his interest in the partnership. A distribution may be in the form of money, debt relief, or other property. Any decrease in a partner’s allocable share of P/S debt is treated as a distribution of money. This can result from payment of principal by the P/S on its debt. Also, a draw against a partner’s share of partnership income is a distribution. Chapter 20, Exhibit 3a CCH Federal Taxation Distributions—General Rules Code Sections 731 to 733 Will the partnership recognize either a gain or loss on the distribution of property to a partner? Generally no. Even distributions of Code Sec. 1245 or Code Sec. 1250 property do not trigger recognition unless Code Sec. 751(b) applies. Exception: Disproportionate distributions. Chapter 20, Exhibit 3b CCH Federal Taxation Distributions—General Rules Code Sections 731 to 733 Will the partner recognize either a gain or loss on the distribution? Capital gain is recognized only if cash or debt relief received is greater than her outside basis. Loss is never recognized. Code Sec. 731(a); Reg. 1.731-1(a)(1). If the cash received is a draw against profits and the amount received is greater than outside basis, gain is NOT recognized....
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2008 CCH Comp Topics Ch20 - Chapter 20...

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