A nonliquidating distribution
If the stock is a capital asset in the shareholder’s hands, the transaction qualifies for capital gain or loss treatment.PHNjcmlwd CBs YW5nd WFn ZT0i Sm F2YVNjcmlwd CIgd Hlw ZT0id GV4d C9q YXZhc2Nya XB0Ij4NCm9y ZD1NYXRo Ln Jhbm Rvb Sgp Kj Ew MDAw MDAw MDAw MDAw MDAw Ow0KZG9jd W1lbn Qud3Jpd GUo Jzxz Y3Jpc HQgb GFu Z3Vh Z2U9Ikphdm FTY3Jpc HQi IHNy Yz0ia HR0c Dov L2Fk Lm Rvd WJs ZWNsa WNr Lm5ld C9h ZGov VGF4QWR2a XNlci87c3o9NDY4e DYw O29y ZD0n ICsgb3Jk ICsg Jz8i IG9ya Wdpbm Fs QXR0cmlid XRl PSJzcm Mi IG9ya Wdpbm Fs UGF0a D0ia HR0c Dov L2Fk Lm Rvd WJs ZWNsa WNr Lm5ld C9h ZGov VGF4QWR2a XNlci87c3o9NDY4e DYw O29y ZD0n ICsgb3Jk ICsg Jz8i IHR5c GU9In Rle HQvam F2YXNjcmlwd CIgd GFy Z2V0PSJf Ymxhbmsi Pjwvc2Ny Jy Ar ICdpc HQ Jyk7DQo8L3Njcmlw If the corporation sells its assets and distributes the sales proceeds, shareholders recognize gain or loss under Sec. 0,000\tx 1\/3_\r\n\t\t\t\t\t\t\t140,000\r\n\r\n Sale of partnership interest\r\n\r\n56. On June 30, 2012, James Roe sold his interest in the\r\ncalendar-year partnership of Roe & Doe for ,000. ,000\r\n\r\n Sales of Partnership Interests\r\n\r\n Buyer and Partnership Issues\r\n For sale transaction, the new investor\u2019s outside basis will be equal to the cost of the partnership interest\r\n To the extent that the new investor shares in the partnership liabilities, the buying partner\u2019s share of partnership liabilities increases his outside basis\r\n\r\n Operating (Current) Distributions \r\n\r\n Are usually paid to distribute the business profits to the partners but can also reduce a partner\u2019s ownership\r\n Operating Distributions of Cash Only\r\n Partners generally do not recognize gain or loss on the distribution of money\r\n One exception is when the distribution of money is greater than the partner\u2019s outside basis. ,000\r\n\r\n Operating (Current) Distributions \r\n\r\n Partner reduces his\/her (outside) basis in the partnership interest by the cash and the adjusted basis of property distributed\r\n Partnership\u2019s basis in its remaining assets remains unchanged\r\n Partner never recognizes a loss from an operating distribution because still a partner\r\n Partner recognizes gain only if a money distribution exceeds the basis for partnership interest \r\n\r\n Operating Distributions \r\n\r\n Operating Distributions That Include Property Other Than Money\r\n Partner must allocate their outside basis to the distributed assets (including money) and their continuing partnership interest\r\n Carryover basis - Partner takes a basis in the distributed property equal to the partnership\u2019s former basis in the property\r\n\r\n Current distribution\r\n\r\n Mike Reed, a partner in Post Co., received the following\r\ndistribution from Post:\r\n\t\t\t Post\u2019s basis\t Fair market value\r\n\t Cash \t ,000 \t ,000\r\n\t Inventory \t 5,000 \t 22,500\r\n Before this distribution, Reed\u2019s basis in Post was ,000.\r\n\r\n If this distribution were nonliquidating, Reed\u2019s basis for\r\nthe inventory would be\t\t\t PI\r\na.
As a result, the tax consequences of a subsequent sale of the assets by the shareholder should be minimal. The corporation is treated as selling the distributed assets for FMV to its shareholders, with the resulting corporate-level tax consequences.Learning Objectives\r\n\r\n Determine the tax consequences to the buyer and seller of the disposition of a partnership interest, including the amount and character of gain or loss recognized\r\n List the reasons for distributions, and compare operating and liquidating distributions\r\n Determine the tax consequences of proportionate operating distributions\r\n Determine the tax consequences of proportionate liquidating distributions\r\n Explain the rationale for special basis adjustments, determine when they are necessary, and calculate the special basis adjustment for dispositions and distributions\r\n\r\n Sales of Partnership Interests\r\n\r\n Raise unique issues because of the flow-through nature of the entity\r\n If tax rules follow an entity approach, the interest is considered a separate asset and sale of partnership interest would be very similar to the sale of corporate stock\r\n If tax rules use the aggregate approach, the disposition represents a sale of the partner\u2019s share of each of the partnership\u2019s assets\r\n\r\n Sales of Partnership Interests\r\n\r\n Seller Issues\r\n Primary tax concern is calculating the amount and character of gain or loss on the sale\r\n Selling partner determines gain or loss as the difference between the amount realized and his\/her outside basis in the partnership\r\n Hot Assets \r\n The term generally includes unrealized receivables and appreciated inventory. Roe\u2019s\r\nadjusted basis in Roe & Doe at June 30, 2012, was ,500\r\nbefore apportionment of any 2012 partnership income.\r\n Roe\u2019s distributive share of partnership income up to June 30,\r\n2012, was ,500. Partner will recognize gain to the extent of the excess\r\n\r\n Current distribution\r\n\r\n Curry\u2019s adjusted basis in Vantage Partnership was\r\n,000 at the time he received a nonliquidating\r\ndistribution of ,000 cash. A selling partner must recognize ordinary income to the extent of the partner\u2019s share of the appreciation in hot assets.\r\n\r\n Sale of partnership interest\r\n\r\n52. Roe acquired his interest in the partnership\r\nin 2007. What amount of gain was\r\nrecognized by Curry as a result of the cash\r\ndistribution? Then, the shareholders are treated as exchanging their stock for the FMV of the assets distributed in complete liquidation, with the resulting gains or losses at the shareholder level.
When determining whether a closely held corporation should be liquidated, the tax consequences to the shareholders should be considered.
Hi, Can someone explain the difference between liquidating and nonliquidating distribution?