Chapter 20 2014 CCH Federal Taxation Comprehensive Topics by Smith, Harmelink, and Hasselback 2014 - Chapter 20 Sales and Exchanges OBJECTIVES After

Chapter 20 2014 CCH Federal Taxation Comprehensive Topics by Smith, Harmelink, and Hasselback 2014

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Chapter 20 Partnerships—Distributions, Sales, and Exchanges OBJECTIVES After completing Chapter 20, you should be able to: 1. Understand the differences in the tax treatment of current and liquidating distributions. 2. Determine the tax consequences associated with liquidating vs. non-liquidating distributions of cash from a partnership. 3. Determine the tax consequences associated with liquidating and non-liquidating distributions of property other than cash from a partnership. 4. Determine the tax consequences when a partner receives a distribution of both cash and property from a partnership. 5. Compute a partner’s tax basis in property when (s)he receives multiple assets in a single distribution. 6. Identify those situations when a partner recognizes gain or loss in connection with the receipt of a partnership distribution. 7. Understand the effects that liabilities have on the measurement of tax basis in connection with partnership distributions. 8. Compute the amount of ordinary income to be recognized by a partner or partnership when the partnership makes a disproportionate distribution to a partner. 9. Measure a partner’s recognized gain or loss from sale of his/her interest in a partnership. 10. Determine what portion of a partner’s gain on sale of his/her partnership interest will be treated as ordinary income vs. capital gain. 11. Identify situations when a partnership will be allowed or required to make adjustments to the basis of its assets and allocate those adjustments among the partnership’s assets. OVERVIEW The tax treatment of distributions received by a partner from a partnership differs substantially from that accorded corporate distributions. Unlike corporate distributions, partnership distributions are generally nontaxable to both the partner and the partnership. The specific tax consequences of a partnership distribution depend on whether the distribution is a liquidating distribution (liquidating the partner’s interest in the partnership) or a current distribution (one that does not liquidate the partner's interest in the partnership). Generally speaking, a current or non-liquidating distribution will trigger recognition of taxable income to a partner only if the partner receives cash in an amount greater than his or her tax basis in the partnership interest. If the partner does not receive such an “excess” cash distribution, he/she will generally recognize no taxable gain and will take a carryover basis in any property received from the partnership (i.e., will take the same tax basis in such property as the partnership had just prior to the distribution). The partner will reduce the tax basis of the partnership interest in an amount equal to the basis assigned to the distributed property. Of course, for this mechanism to work, the partner’s basis in the distributed property cannot exceed his/her tax basis in the partnership interest before receipt of the distribution.
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