Liquidating Distributions Of A Partner's Interest In A Partnership

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.

  1. Calculating the recognized gain or loss from a cash or property distribution in liquidation of the partnership interest
  2. Substantiating the partner’s basis in property received in liquidation.
  3. 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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