liquidatingdistributions11

liquidatingdistributions11 - Liquidating Distributions...

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Liquidating Distributions Circular 230 Notice: Any tax advice included in this communication cannot be used for the purpose of avoiding U.S. federal tax-related penalties, nor can it be used in promoting, marketing or recommending tax-related matters addressed herein. These materials are for educational purposes and do not represent tax advice under the provisions of Circular 230.
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Liquidating Distribution Distribution (or series) that terminates an interest in the partnership. Sec. 761. Can have termination of a single partner, or of the partnership as a whole.
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Sec. 736 Payments for liquidation of a retiring partner’s interest in a continuing partnership are divided into two categories. The first are payments for the partnership’s property. These are governed by distribution provisions. The second category is ‘all other’ and are either treated as distributive share (if based on profits) or a guaranteed payment.
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736(b) If the partnership is a service partnership (capital not material for income production), unrealized receivables and goodwill (if goodwill is not described in partnership agreement) are excluded from 736(b) liquidation treatment. Depreciation recapture is not included.
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Gain or Loss to Partner Gain to the partner is the same as for ordinary distribution, and is excess of money (including liability reduction and marketable securities) received over outside basis. Sec. 731. Unlike operating, can have loss on liquidating if only receive money, receivables and inventory and no other types of property. Considered capital loss under Sec. 741. See example C10-15.
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Basis to Partner Basis of receivables and inventory is normally the same as to the partnership. If partner has too little basis available, allocate basis first to receivables and inventory using any declines in value, and then on their relative values.
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Basis (cont.) If have other types of property, any remaining basis is allocated to this property. (So no loss.) See example C10-16. Will eventually get the loss upon sale, unless the
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liquidatingdistributions11 - Liquidating Distributions...

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