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They each take a distribution of half of the land and half of the after-tax cash
If a partnership, Jan and Joe each have partner capital with basis of 14,000 and FMV of $35,000
Liquidating distribution is made on first day of year. Company has no other transaction.
This analysis is for Joe
who owns 50% of company.
1 Entity reports gain on entire distribution
2 Tax paid by entity on entire distribution
3. Joe's basis in entity before these transactions
4. Flow-through gain to Joe
5. Joe's basis in entity after gain on distribution
6. Land distributed to Joe (50% of land)
Land distributed to Joe (50% of land)
Cash distributed to Joe (his after-tax share)
7. Joe's Gain (Loss) on distribution
8. Joe's basis in land
C Corporation (Distributions- Sec. 301, 311, 312(a),(b), 316, 317, 331, 334)
C Corporation distributes dividend of appreciated property --- treated as sold at FMV.
Distributing corporation pays tax on gain using regular corporate rates.
Corporate gains and losses do not flow-through to a C corporation shareholder.
Joe receives half of land (50% of $60,000), plus 50% of ($10,000 - $6,000).