What is Partnership liquidating distribution?
In short
In a liquidating distribution, which ends a partner's interest, the partner recognizes gain only if money received exceeds outside basis, and recognizes a loss only if they receive nothing but money, receivables and inventory.
Key takeaways
- Any other property received takes the partner's remaining outside basis, so no loss is recognized.
- Money includes the partner's share of partnership liabilities that is relieved.
- Hot assets can create ordinary income when the distribution is disproportionate.
Example
A partner with $50,000 outside basis receives $10,000 cash and land with a partnership basis of $25,000: the land takes a $40,000 basis.
Where it's tested
TCP: Distributions, Redemptions & Liquidations — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
In a complete liquidation of a C corporation under Section 331, the shareholder: