[juslovely]

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”.