Timothy is a 35 percent partner in the Total Partnership, a calendar-year-end en
ID: 2901970 • Letter: T
Question
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
Basis
FMV
Cash
$50,000
$50,000
Inventory
65,000
75,000
Land
50,000
65,000
Totals
$165,000
$180,000
Explanation / Answer
ans)
total outside basis= $198,000
Timothy's share= $45,000
Timothy's adjusted outside basis=total outside basis - Timothy's share= $198,000 - $45,000=$153000.
total value of distribution=$165,000
since total value of distribution is greater than Timothy's adjusted outside basis,he is gain.
gain= total value of distribution - Timothy's adjusted outside basis=$165,000 - $153000=$12,000.
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.
ans)
since, the overall adjusted outside basis is less than distributed value,this leads to overall gain.
hence, the overall gain of Timothy is same to that in case of current distribution.
overall gain= $12,000.
after liquidation Timothy's total outside basis is zero(0).
--->main difference between current and liquidating distribution is
1)that liquidating distribution recognises loss.
2)outside basis in liquidating distribution becomes zero after liquidation.
3)Discuss the similarities and differences between the tax consequences of the operating distribution and the tax consequences of the liquidation distribution.
ans)
Distributions fall into two categories:-
Current distributions (Nonliquidating distributions)
Liquidating distributions
Current Distributions:-
in a current distribution, the partnership is simply distributing money or property to a continuing partner. On the other hand, a liquidating distribution completely terminates the partner
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