chap_20 - Chapter 20 Partnerships-Distributions Sales and...

Chapter 20
Partnerships—Distributions,
Sales, and Exchanges
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1. Distributions—General Effect on Partners
2. Distributions—General Rules Code Sections 731 to 733
3. Proportionate Distributions—Example
4. Selling a Partnership Interest—Effect on Selling Partner
5. Selling a Partnership Interest—Effect on Partnership
6. Selling a Partnership Interest—Example
7. Selling a Partnership Interest with Hot Assets—Example
8. Basic Partnership Tax Accounting—Outside Basis, Inside Basis, and
Capital Account
9. Basic Partnership Tax Accounting—Example 1 (Formation)
Chapter 20 Exhibits
Chapter 20, Exhibit Contents A

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10. Basic Partnership Tax Accounting—Example 2 (Profit Allocation)
11. Basis Adjustments Attributable to Partnership Distributions—Sec.
734(b)
12. Death or Retirement of a Partner
13. Income in Respect of a Decedent
Chapter 20 Exhibits
Chapter 20, Exhibit Contents A

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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

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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

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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.