Proportionate nonliquidating distribution examples
Ex: Partner A, with an adjusted basis of ,000 in his partnership interest, receives in a current distribution property having an adjusted basis of ,000 and a FMV of ,000 to the partnership immediately before distribution, and ,000 cash.The basis of the property in A's hands will be ,000, the same basis the partnership has in the property.If S would recognize a ,000 loss on a liquidation of the partnership that follows the distribution to R, then R should be required to recognize ,000, rather than ,000, of gain on a subsequent sale of property 1, so that the total gain recognized by both parties equals the appreciation inside the partnership of ,000. When the pre-distribution bases of the distributed properties (other than money) exceed the partner’s remaining outside basis after reduction for money received, the bases of the properties must be reduced, and this reduction must be allocated among the distributed properties. The total basis of the distributed properties is 0 ( ), A’s remaining outside basis after reduction for money received is 0 (0-).If the distribution does not include any inventory items or unrealized receivables (“hot assets”), the basis reduction is first allocated among all of the distributed properties to the extent of their unrealized depreciation. A receives a current distribution of in cash as well as properties X and Y which are not hot assets. Thus, A must take a basis in the properties is 0, and so A is required to reduce the basis of X and Y from 0 to 0. The first of the basis reduction is allocated to X to the extent of its unrealized depreciation of ( - ). The remaining of basis reduction is allocated each to X and Y because they have the same remaining basis of .Before the distribution, the appreciation inherent in the asset held by the partnership was ,000 (,000-,000).Rather than requiring the partnership to recognize ,000 of gain upon the distribution to A, however, as shown above, no gain is recognized.The partnership then takes ,000 of the ,000 of cash and purchases property 1.
He receives a current distribution of ,000 cash and property 1 with an adjusted basis to the partnership of ,000 and a FMV of ,000.But now that I'm settled in, I'm excited to get back to providing what no one ever really asked for: an in-depth look at a narrow area of the tax law. As you will see, the regime governing partnership distributions is drastically different from the one governing corporate distributions.This is primarily attributable to the fact that when a corporation (whether C or S) makes a distribution of appreciated property, the corporation recognizes gain as if it sold the asset for its FMV.Instead, the gain of ,000 is preserved by giving A a basis in the property of ,000.Now, if A sells the property for its FMV of ,000, A will recognize the ,000 of gain that the partnership did not recognize.