Cash basis liquidating distributions
Other than for purposes of determining the gain, the increase is treated as occurring immediately before the distribution. The partnership must adjust its basis in any property the partner contributed within 7 years (5 years for property contributed before June 9, 1997) of the distribution to reflect any gain that partner recognizes under this rule. Any part of a distribution that is property the partner previously contributed to the partnership is not taken into account in determining the amount of the excess distribution or the partner's net precontribution gain.For this purpose, the partner's previously contributed property does not include a contributed interest in an entity to the extent its value is due to property contributed to the entity after the interest was contributed to the partnership.When a partnership distributes the following items, the distribution may be treated as a sale or exchange of property rather than a distribution. Inventory items of the partnership are considered to have appreciated substantially in value if, at the time of the distribution, their total fair market value is more than 120% of the partnership's adjusted basis for the property.However, if a principal purpose for acquiring inventory property is to avoid ordinary income treatment by reducing the appreciation to less than 120%, that property is excluded.If partnership property (other than marketable securities treated as money) is distributed to a partner, he or she generally does not recognize any gain until the sale or other disposition of the property.For exceptions to these rules, see Distribution of partner's debt and Net precontribution gain, later.Also, see Payments for Unrealized Receivables and Inventory Items under Disposition of Partner's Interest, later. The adjusted basis of Jo's partnership interest is ,000.
She receives a distribution of property that has an adjusted basis of ,000 to the partnership and ,000 in cash. He receives a distribution of ,000 cash and property that has an adjusted basis to the partnership of ,000.The amount treated as money is the security's fair market value when distributed, reduced (but not below zero) by the excess (if any) of: For more information, including the definition of marketable securities, see section 731(c) of the Internal Revenue Code. A partner does not recognize loss on a partnership distribution unless all the following requirements are met. The partner is treated as having satisfied the debt for its fair market value.If the issue price (adjusted for any premium or discount) of the debt exceeds its fair market value when distributed, the partner may have to include the excess amount in income as canceled debt.The partnership may be able to elect to adjust the basis of its undistributed property, as explained later under Adjusting the Basis of Partnership Property.Certain distributions treated as a sale or exchange.
Money or property withdrawn by a partner in anticipation of the current year's earnings is treated as a distribution received on the last day of the partnership's tax year. A partner's adjusted basis in his or her partnership interest is decreased (but not below zero) by the money and adjusted basis of property distributed to the partner.