Question

Similar to a C-Corporation, a partnership can make liquidating and non liquidating distributions to its owners.

1-What are the effects to the partner and the partnership of a non liquidating distribution of cash? How would your answer change (or not change) if it were a non liquidating distribution of cash from a C-Corporation to its shareholders?

2-What are the effects to the partner and partnership of a liquidating distribution of land if the land had a FMV at distribution of $100,000 and entity’s basis in the land was $150,000? How would your answer change (or not change) if it were a liquidating distribution of the land from a C-Corporation to its shareholders?

Answer 1

Answer 1:-

A non liquidating distribution of cash from a partnership to partner is not taxable in hands of iethre the partner or the partnership.

Anwer would be different if it were a non liquidating distribution of cash from a C-Corporation to its shareholders.To the extent that a distribution is made from the corporation’s earnings and profits, it is taxed to the shareholder as a dividend .The portion of the distribution that is not considered a dividend is applied first to reduce the shareholder’s basis in the corporation’s stock.Any remaining portion is treated as gain from the sale or exchange of property (capital gain)

Anwer 2:-

Loss would be recognised of $ 50,000 in hands of partners