Start Nonliquidating distribution

Nonliquidating distribution

first to any unrealized receivables (as defined in section 751(c)) and inventory items (as defined in section 751(d)) in an amount equal to the adjusted basis of each such property to the partnership, and if the basis to be allocated is less than the sum of the adjusted bases of such properties to the partnership, then, to the extent any decrease is required in order to have the adjusted bases of such properties equal the basis to be allocated, in the manner provided in paragraph (3), and then, to the extent any increase or decrease in basis is required in order to have the adjusted bases of such other distributed properties equal such remaining basis, in the manner provided in paragraph (2) or (3), whichever is appropriate. More limitations on accuracy are described at the GPO site.

The Secretary may by regulations require the application of this subsection in the case of a distribution to a transferee partner, whether or not made within 2 years after the transfer, if at the time of the transfer the fair market value of the partnership property (other than money) exceeded 110 percent of its adjusted basis to the partnership.

a corporation (hereafter in this subsection referred to as the “corporate partner”) receives a distribution from a partnership of stock in another corporation (hereafter in this subsection referred to as the “distributed corporation”),then an amount equal to such excess shall be applied to reduce (in accordance with subsection (c)) the basis of property held by the distributed corporation at such time (or, if the corporate partner does not control the distributed corporation at such time, at the time the corporate partner first has such control).

Sales or Exchanges On or After December 15, 1999 - The Hypothetical Sale Approach a. Example of Five-Step Application of § 751(a) (1) Step 1 - Classify Each Partnership Asset as Either an Item of § 751(a) Property or an Item of Other Property (2) Step 2 - Determine the Gross Fair Market Value, § 704(b) Basis, and Tax Basis of Each Item of § 751(a) Property and, If Necessary, Items of Other Property of the Partnership (3) Step 3 - Determine and Allocate the Total Amount of § 704(b) Gain or Loss Attributable to § 751(a) Property that Would Be Recognized from a Hypothetical Sale of All Partnership Assets for Their Fair Market Value (4) Step 4 - Determine the Amount of Taxable Ordinary Income or Loss that the Transferor Partner Recognizes Under § 751(a) with Respect to the Transferred Interest (5) Step 5 - Determine the Transferor Partner's Residual Capital Gain or Loss Recognized 3. Relevance of Gross Fair Market Value and the Interaction of § § 751(a) and 752 d. Hypothetical Current Distribution of Relinquished Interests b. Sale and Purchase by the Partnership (1) Gain or Loss Recognized (2) Character of Gain or Loss (3) Tax Basis of Partnership Property (4) Holding Period of the Purchased Property 9.

Five-Step Application of § 751(a) Using the Hypothetical Sale Approach d. Sales or Exchanges On or After December 15, 1999 b. Step 3: Determine the Distributee Partner's Interests in the Gross Fair Market Value of Each Item of § 751(b) Property and Other Property Before and After the Distribution 6. Step 5: Determine the Tax Basis of Interests in the § 751 Class Relinquished by the Distributee Partner a. Step 6: Determine the Federal Income Tax Consequences of the § 751(b) Exchange to the Distributee Partner and the Partnership a. Sale and Purchase by the Distributee Partner (1) Gain or Loss Recognized by the Distributee Partner (2) Character of Gain or Loss (3) Tax Basis of Property Deemed Purchased (4) Holding Period of Purchased Property c.

Abandonments and Worthlessness of Partnership Interests 3. Amount and Allocation of Zero-basis Unrealized Receivables 5. Property Which, if Held by a Transferor or Distributee Partner, Would be Considered Inventory Items in § 751(d)(1) or (2) VI. Basis Adjustments Under Section 743(b) or Section 734(b) Working Papers Table of Worksheets Worksheet 1 Table of Examples Worksheet 2 Ways and Means Committee Report, Internal Revenue Code of 1954 H.

Partnership Mergers, Consolidations, Divisions, and Conversions (1) Overview (2) Partnership Mergers and Consolidations (3) Partnership Divisions (4) Partnership Conversions g. Allocating Unrealized Appreciation and Depreciation in Partnership Property 4. Previously Expensed Property - “Property of a Character” and the Tax-Benefit Rule (1) Self-Created Intangibles (2) Prepaid Items of a Cash-Basis Partnership d. Foreign Investment Company Stock (Before January 1, 2005) 5. Partnership Distributions - Sections 735, 732(c) C.

Five-Step Application of the Current Distribution Approach Under the Former § 751(a) Regulations f. Capital Gain Rate Differences - Holding Periods and § 1(h) a. Multiple Holding Periods for Partnership Interests c. Residual Tax Consequences to the Distributee Partner b.

Distributions of Partnership Interests by Corporations 8. Abandonments and Worthlessness of Partnership Interests 10. Sales of Partnership Interests Distinguished from Distributions C. Sales or Exchanges Before December 15, 1999 – the Current Distribution Approach a. Interaction of § 704(c) Principles and § 751(a) as Applied Under the Former § 751(a) Regulations e. Collateral Effects of a Hypothetical Current Distribution c. Step 7: Determine the Federal Income Tax Consequences of the Portion of the Partnership Distribution that Is Not a § 751(b) Exchange a.

Types of Distributions - Nonliquidating and Liquidating d. Distributions of Partnership Interests, Aggregate Principles, and the Effects of § 751(f) f. Threshold Issues in the Application of Section 751(b) 1. Relevance of Gross Fair Market Value and Partnership Liabilities 3. Partnership Contributions - Sections 724, 704(c) B.

Distributions of Property Contributed by the Distributee Partner b. Gifts, Payments for Services or for the Use of Capital, and Guaranteed Payments D. Other Rules that Preserve the Character of Ordinary Income Potential A. 70, A234 (1954) (Transfer of Partnership Interest) Worksheet 3 Senate Finance Committee Report, Internal Revenue Code of 1954 S. § 1.751(b)(5) Worksheet 7 Sample - Statement To Be Attached to the Tax Return of a Distributee Partner Pursuant to Regs.

Creditors are always senior to shareholders in receiving the corporation's assets upon winding up.