Proportionate nonliquidating distribution

Proportionate nonliquidating distribution

Section provides the rules for determining the effect of distributions upon the distributes partner's remaining basis in the partnership interest. The statutory provisions which govern the treatment of partnership distributions are contained in Sections through of the Code.

Consequently, the general rule of Section is that no gain or loss is recognized by the partner or the partnership in a distribution of cash or property. However, the distributes partner's basis may never be reduced below zero. Section provides the rules for determining the basis of property received in a distribution. Calculate Greg's basis in the land, in the inventory, and in his partnership interest immediately following the distribution. Section controls the extent to which gain or loss will be recognized on partnership distributions.

However the distributes partner's basis may

Nonliquidating distributions of cash and other property that will not result in the liquidation of the distributes partner's interest. The partnership continues in existence. These types of distributions will be discussed in section B. There are, however, two exceptions to this general rule.

Any gain recognized in a distribution is treated as gain from the sale or exchange of a partnership interest which is ordinarily a capital gain or loss. Gain or loss recognized as a result of a distribution is considered a gain or loss from the sale or exchange of a partnership interest. Thus, losses will never be recognized in current distributions. Liquidating distributions of cash and other property that will eliminate a partner's interest in the partnership. These rules are beyond the scope of this discussion.

Consequently the general ruleSection provides the rules for

Overview There are three basic types of distributions that can result from a partnership, and different sets of rules govern the income tax consequences of each. Although distributions or allocation of partnership losses may reduce a partners basis in the partnership interest to zero, the continuing interest in the partnership remains the same e. Thus, no loss can be recognized on a distribution of marketable securities. Consequently, if the basis of property distributed exceeds the partner's outside basis in the partnership, the partner's outside basis for the remaining interest is zero. Any money distributed, and The basis of any other property distributed.

These types of distributions will be discussed briefly in section C. The computation of gain is made without regard to any other property that may be distributed concurrently.

The partnership generally recognizes no gain or loss on current or liquidating distribution of property, including money, to a partner. Disproportionate distributions which affect the partner's share of ordinary income property of the partnership. The result may be that some of the basis of the distributed property could disappear.