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Assume a partnership makes a distribution of land used in their business to a 60% owner....

  1. Assume a partnership makes a distribution of land used in their business to a 60% owner. The partnership purchased the land for $410,000. At the time of the distribution, the land has a FMV of $200,000. The partner’s outside basis is $540,000.
    1. What is the tax result to the partnership and the partner on this distribution if it were a non liquidating distribution? (2 Points)
    2. What is the tax result to the partnership and the partner on this distribution if it were a liquidating distribution? (2 Points)
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Answer #1

a. If this is non liquidating distribution then the partnership will recognize to of 410,000 -200,000 = 210,000 which will be allocated among partners reducing there inside basis and Partner's outside basis is more than FMV of the asset received so 540,000 tax basis will be reduced by 200,000 to 340,000 and no tax liability will occur in the hands of Partner.

b. But in case of Liquidating Distribution partner will recognize loss of 540,000 - 200,000 = 340,000 and no tax consequences to partnership.

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