In short
A contribution of property to a partnership followed by a distribution of money or other property to the contributing partner can be treated as a disguised sale, making the partner recognize gain as if part of the property were sold.
Key takeaways
- A contribution and distribution within two years are presumed to be a sale unless the facts clearly show otherwise.
- The partnership taking on some of the partner's liabilities can also trigger a disguised sale.
- Guaranteed payments and normal operating distributions are generally not treated as part of a sale.
Where it's tested
TCP: Partnership Compliance & Planning — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
A partner contributes property with a basis of $30,000 and a fair market value of $50,000, subject to a $10,000 liability the partnership assumes, for a 25% interest. Assume this is the partnership's only liability. What is the partner's basis in the partnership interest?