Tax consequences of liquidating a partnership
, provides a detailed discussion of the tax consequences of distributions by partnerships to partners, including those arising from distributions of a partner’s share of the results of partnership operations, and other distributions by the partnership that do not result in termination of the distributee’s interest in the partnership even though accompanied by a change in the distributee’s and remaining partners’ shares of capital or profits and losses, whether in money or property — all called current distributions — and distributions of money or property on the withdrawal of a partner whether on death or withdrawal — called liquidating distributions.Liquidating distributions may be accompanied by other retirement payments that do not represent consideration for the withdrawing partner’s interest in partnership property, and may be deferred compensation, or other claims against past or future partnership income.Finally, Part V analyzes , which characterizes partnership payments made to a retiring partner or the successors of a deceased partner, dividing them between those that are liquidating distributions allocable to the retiring or deceased partner’s interest in the partnership (including goodwill and similar intangibles) that are governed by the principles discussed in Part IV, and any other withdrawal payments, which are classified as either distributive share payments, with their character determined by the allocable share of partnership income, or guaranteed payments, which are ordinary income to the distributee without regard to partnership income, depending on whether their amount is determined by partnership income or not, and are, in effect, deductible (or excludible) by the partnership (remaining partners). It also addresses estate and income tax considerations relevant to a deceased partner’s successors, other than those involving I. Overview of the Rules Governing Partnership Distributions III. This Portfolio analyzes not only the relevant statutory and regulatory materials, but also the large body of case law, revenue rulings, and other IRS pronouncements, including technical advice memoranda and private letter rulings, that are all part of this, unfortunately complex, body of tax law.
All but the traditional general partnership have limited liability, and a general partnership can, in most states, achieve limited liability by a simple filing to become an LLP, but, particularly for professionals that limited liability protects against vicarious liability but not against liability for one’s own malpractice, including, of course malpractice in giving advice related to partnership tax matters.since we've had a Tax Geek Tuesday, but that's not to say I've shirked my responsibility of trying to make sense of the nether regions of the Internal Revenue Code.For the past few months, I've been traveling around the country teaching the finer points of the Affordable Care Act and the repair regulations in such exotic locales as Hartford, Grand Junction and Billings, which is every bit as depressing as it sounds.To the contrary, when a partnership distributes appreciated property, the general rule is one of no gain is recognized by the partnership, and instead the gain will be recognized when the distributee partner sells the property.
The downside of deferral, however, is that in order to ensure that any gain in the partnership's assets is preserved, a complex set of rules governing the distributee partner's basis in the distributed property is required.
It is these rules -- those governing gain recognition and determination of partner basis -- that are the focus of this Tax Geek Tuesday.