Partnership liquidating distribution and example

751(b), no gain or loss is recognized by the partnership in connection with a distribution to a partner. 734 Basis Adjustments For Partnership Distributions In certain circumstances, a distribution to a partner may result in a "special basis adjustment" to the remaining assets of the partnership. 734(b) (1) provides generally that where a partnership has made a valid IRC Sec.

754 election, the basis of partnership property (remaining after the distribution) shall be increased by 1) the amount of any gain recognized to the distributee partner(s) on the distribution, and 2) the amount by which the partnership's basis in any property distributed exceeds the basis of such property to the distributee partner after the distribution.

Where one class of assets is distributed, but no property of that class is retained by the partnership (or the retained property of the same class has insufficient inherent gain or loss to fully absorb the IRC Sec.

Although the new revenue ruling explains the IRS's stance on the issue more clearly, it unfortunately will lead to unfair results at the partnership level in many instances.

In 1993, A and B receive respective liquidating distributions of Cash = ,000 and Greenacre (FMV ,000, Basis = ,000); recognizing losses of ,000 and zero, respectively. 754 election is in effect, the partnership must make a ,000 negative IRC Sec.

734 basis adjustment to the remaining partnership assets with respect to each of the distributions. 734 basis adjustment is made immediately after the distribution and is allocated among the remaining assets in accordance with IRC Sec.

736(a) treatment for liquidation payments where capital is a material income producing factor.

Such payments must be treated as made in exchange for the partner's interest in partnership property under IRC Sec. Finally, except for disproportionate distributions under IRC Sec.

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In 1993, Partner A receives a distribution of Cash = $45,000 and Partner B receives a distribution of Blackacre (FMV $80,000, Basis = 45,000).

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