Tax Consequences of Distributions from LLCs and Partnerships
When a business operates as a partnership, the partners each report a percentage -- which is usually liqukdating same as their percentage of ownership -- of annual earnings on their personal returns. As a result, the tax effects of partnership liquidating distribution tax treatment partnership that makes liquidating distributions only impacts the partners who receive them. To be taxed as a liquidating distribution, however, a partner's interest in the partnership click terminate.
disproportionate distributions partnershipEllentuck, Esq. Under Sec. The shareholders generally recognize gain or loss in an amount equal to the difference between the fair market value FMV of the assets received whether they are cash, other property, or both and the adjusted basis of the stock surrendered. As a result, the tax consequences of a subsequent sale of the assets by the shareholder should be minimal.
Years before, the partnership had borrowed money from a third party lender in order to fund the acquisition of equipment or other property. During the interim period, preceding the liquidation of his interest, the departing partner had been allocated his share of deductions attributable to the debt-financed properties, which presumably reduced his ordinary income and, thus, his income tax liability.
This Portfolio examines the tax consequences to the partnership, distributee partner, and remaining partners upon a distribution of cash or property by a partnership to a partner. Description Bloomberg Tax Portfolio No. When the withdrawal is a result of death, there may be other collateral income and transfer tax consequences. Distributions, usually liquidating distributions, are important components of major partnership restructurings, including divisions, mergers, incorporations, and changes in legal form. As with all other aspects of partnership taxation, the dual nature of a partnership for tax purposes — as at times an aggregation of its partners, and at times an entity — complicates the discussion, particularly because no one, including the author, has been able to articulate a comprehensive statement of when the aggregate, and when the entity, aspect should predominate.
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