In the plethora of files across my desk over the years, navigating compliance issues for liquidating distributions of a partner’s interest in a partnership have 3 buzzworthy considerations to avoid unwanted scrutiny.
- Calculating the recognized gain or loss from a cash or property distribution in liquidation of the partnership interest
- Substantiating the partner’s basis in property received in liquidation.
- Correctly determining the character and holding period of the property distributed.
When it comes to calculating the recognized gain or loss from a liquidating distribution IRS Revenue Agents are trained to determine whether the distributions were:
- Current in the tax period
- Part of a disguised sale
- A distributive share of partnership income
- A guaranteed payment
- An exchange for partnership property.
Lessons learned –
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