Critical Thinking: Partnership Formation to Dissolution
Timothy is a 35 percent partner in the Total Partnership, a calendar-year-end entity. Timothy has an outside basis in his interest in Total of $198,000, which includes his share of the $45,000 of partnership liabilities. On December 31, Total makes a proportionate distribution of the following assets to Timothy:
|
Basis |
FMV |
|
|
Cash |
$50,000 |
$50,000 |
|
Inventory |
65,000 |
75,000 |
|
Land |
50,000 |
65,000 |
|
Totals |
$165,000 |
$180,000 |
- For an operating distribution, outline the tax consequences (amount and character of recognized gain or loss, basis in distributed assets) of the distribution to Timothy.
- For a liquidating distribution, outline the tax consequences (amount and character of recognized gain or loss, basis in distributed assets) of the distribution to Timothy.
- Discuss the similarities and differences between the tax consequences of the operating distribution and the tax consequences of the liquidation distribution.
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