Liquidating vs nonliquidating distributions partnerships

In response to this concern, the IRS and Treasury issued proposed regulations (REG-151416-06) in October 2014 in an attempt to provide clarity to this complex area. 731 provide the general rules governing the recognition of gain or loss on distributions from partnerships to their partners. 751, however, supersedes the general stipulations of Sec. Under the current regulations, the application of Sec.

751(b) hinges on the gross value of the partnership’s assets, focusing on a given partner’s share in all partnership assets, as opposed to the partner’s allocable share of the unrealized gain or loss in the property.

The regulations being proposed under IRC Secs 13 provide the particulars of adjustments to stock basis and distributions to S corporation stockholders.

The proposals list an ordering rule for the adjustment, either increases or decreases, of stock basis.

But do you really understand why you should never put real estate into a corporation?

Taxpayers have long sought mechanisms to “cash out” their corporate and partnership interests while paying as little tax as possible.

This mainly occurs during voluntary liquidations of solvent corporations.

However, in case all debts to creditors have been fully satisfied, there is a surplus left to divide among equity-holders.

Sometimes in life, when faced with a given situation, we say things simply as a matter of reflex. ” “You have a lovely home here.” “You’re a great gal, I’ll call you sometime. Take, for example, the client who contemplates the type of entity that should be used to hold a piece of real estate.

For most tax practitioners, this would elicit the following Pavolovian reaction: “You should NEVER put real estate inside a corporation.” And while there are very few NEVERS in the tax world, this one is pretty darn accurate.

The aversion of most taxpayers to doing business as a C corporation was attributable to the possibility of suffering a fate worse than death: DOUBLE TAXATION.

Double taxation is the hallmark of the subchapter C regime.


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