Question

What is the tax treatment to a partner who receives a liquidating distribution assuming the partnership...

What is the tax treatment to a partner who receives a liquidating distribution assuming the partnership has made a Section 754 election. The distribution was cash of $10,000 and capital assets of $30,000. The partner's basis before the distribution was $50,000. What is the gain or loss for the partner, the cash basis after the distribution, capital assets basis, and Section 734 Adjustment?

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Answer #1

The gains and losses are to be recognized from the liquidating distribution only when the cash and the ordinary income assets under section 751 are received as a part of the distribution. Thus in this case, partner is receiving the capital asset hence no gain or loss will be recognized for the partner.

Cash basis after distribution remains equal to the fair value= $10000

Capital asset basis= 30000-10000+10000= 30000

Section 734 adjustment = 50000-40000= 10000

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