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    Jul 15, 2014, 01:41 PM
    Corporate Tax-Partnership Formation to Dissolution: Homework Help
    I need help on a assignment I just finished. I did the work, I just need someone to look over it and give me feedback. I also feel like I am missing something, so I could use someone who understands corporate tax to help me with this. I have uploaded my work. The question is at the top and my answers are below under "Answers"

    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

    $50,000

    $50,000

    Inventory

    65,000

    75,000

    Land

    50,000

    65,000

    $165,000

    $180,000

    Cash

    Totals

    Answers:
    1)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 an operating proportionate distribution of cash, the cash distribution is taxable to
    Timothy only if the cash distribution exceeded the outside basis of his interest in the
    partnership; therefore, the cash distribution is not taxable in this scenario because his
    distribution did not exceed the basis of interest in the partnership.
    When Inventory is distributed, which is distributed second (cash is always first), the Fair
    Market Value is taken from the original amount of 198,000 minus the cash distribution of
    50,000. There is not gain recorded because again, the distribution (75,000) did not
    exceed the 148,000 (198,000 – 50,000).
    Lastly, the third thing that is distributed is the property. The rule here is that there is no
    gain or loss recognized on a property distribution from a partnership unless it meets
    certain special tax treatment rules such as “Disguised Sales”, “Marketable Securities” or
    “Precontribution Gain”.

    2)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.
    Timothy’s basis is 198,000 and her cash distribution is 50,000. This cash distribution in
    this scenario is not a gain or a loss because the amount distributed was not exceeding the
    partner’s basis. The cash reduced the partners outside basis dollar for dollar therefore
    there is no tax consequence.
    The inventory is distributed next and again, the distribution does not exceed the reduced
    basis after the cash distribution so there is no tax consequence.
    The land is the same, there is no tax consequence because the amount does not exceed
    the reduced cash basis from the other distributions that come first. The balance left of the
    distribution goes toward this category so that there is nothing left and the company is then
    liquidated. In this case,

    3) Discuss the similarities and differences between the tax consequences of the operating
    distribution and the tax consequences of the liquidation distribution.
    Proportionate distributions to partners of a partnership run parallel for the most part whether it is
    for a non-liquidating or a liquidating distribution. The ordering of distribution is the same,
    which is:
    1) Cash
    2) Unrealized receivables and inventory
    3) All other assets
    The difference is when liquidating, “the partner’s entire basis in the partnership interest is
    allocated to the assets received in the liquidating distributions unless the partner is required to
    recognize a loss”.

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