Start Liquidating distribution from partnership

Liquidating distribution from partnership

The liquidation of a partnership starts with a review of the company's assets, including property and cash, and its debts.

The assistance of legal and accounting professionals can help smooth this process.

These adjustments to basis work with the rules governing distributions to ensure that partnership income is taxed and deductions are taken only once.

A partner will not recognize gain or loss on a distribution, with three exceptions: If the partner receives an in kind distribution from the partnership (other than a liquidating distribution), the partner’s basis in the property received equals the property’s adjusted basis in the hands of the partnership immediately before the distribution (but not in excess of the partner’s basis in his partnership interest), less any money distributed in the same transaction.[25] A partner’s basis in property distributed in kind as part of a liquidating distribution is the same as his basis in the partnership, reduced by money distributed to him in the same transaction.[26] Important Note: Special rules apply to disproportionate distributions of partnership assets that include unrealized receivables (as defined in Code § 751(c)) and substantially appreciated inventory (as determined by Code § 751(b)(3)(A) and (d)).

These rules (a) allocate the partnership’s income, losses, deductions, and credit among the partners and (b) adjust basis to reflect each partner’s allocation of those items.