Liquidating distribution partnership basis
Basis in a partnership is a moving target, requiring frequent adjustments.Partnerships don’t pay tax as an entity but pass a share of their income and deductions along to each partner.While property generally keeps the same basis in the hands of a partner as the partnership, liquidation requires a different approach.The partner transfers his basis in the partnership to the property after accounting for any cash, receivables and inventory.a corporation (hereafter in this subsection referred to as the “corporate partner”) receives a distribution from a partnership of stock in another corporation (hereafter in this subsection referred to as the “distributed corporation”),then an amount equal to such excess shall be applied to reduce (in accordance with subsection (c)) the basis of property held by the distributed corporation at such time (or, if the corporate partner does not control the distributed corporation at such time, at the time the corporate partner first has such control). The amount of the reduction under paragraph (1) shall not exceed the amount by which the sum of the aggregate adjusted bases of the property and the amount of money of the distributed corporation exceeds the corporate partner’s adjusted basis in the stock of the distributed corporation. When the partnership liquidates, the partner can recover his entire basis tax-free.Liquidating a partnership results in a gain or loss depending on how each partner’s distribution compares to his basis.
The partnership just assumes the same basis as the partner.
If the distribution exceeds his basis, he recognizes a gain.
To recognize a loss, the partner’s basis has to exceed the distribution, and the distribution can only be money, unrealized receivables or inventory.
This subsection shall be reapplied to any property of any controlled corporation which is stock in a corporation which it controls.
The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this subsection, including regulations to avoid double counting and to prevent the abuse of such purposes.