Liquidating Distributions

When

partners outside basis is greater than

inside basis of distributed assets

Money and hot assets (Example 21-16 loss exception)

Other properties are included in distribution (Example
21-18)

When

partners outside basis is less than inside

basis of distributed assets

Money and hot assets (Example 21-19)

Other properties are included in distribution (Example
21-21)
21-1

Outside basis>Inside basis & Other

property included
Step 1: The partner first assigns a basis to any money, inventory, and
unrealized receivables equal to the partnership's basis in these assets. The
partner also assigns a basis to the other distributed property in an amount
equal to the partnership's basis in those assets.
Step 2: The partner then allocates the remaining outside basis (full outside
basis less the amounts assigned in Step 1) to the other distributed property that
has unrealized appreciation to the extent of that appreciation.
Step 3: The partner allocates any remaining basis to all other property in
proportion to the relative fair market values of the other property.

21-2

Example 21-18 (Outside basis>Inside

basis & Other property included)
Suppose CCS makes the following distribution to Greg in
liquidation of his CCS interest. Greg's basis in his CCS
interest as of the liquidation is $334,000, including his
$66,000 share of CCS's liabilities. What is Greg's
recognized gain or loss on the distribution? What is Greg's
basis in the distributed assets following the liquidation?

21-3

Outside basis<Inside basis &

money and hot assets

GR: The required decrease in the basis of the distributed

assets is equal to the difference between the partner's
outside basis and the partnership's inside basis in the
distributed assets.

Step one: The partner first assigns her outside basis to the assets received
in an amount equal to the assets' inside bases (allocating to money first).
Step two: The partner allocates the required decrease to the assets with
unrealized depreciation, to eliminate any existing losses built into the
distributed assets.
Step three: The partner allocates any remaining required decrease to the
distributed assets in proportion to their adjusted bases (AB), after
considering the previous steps using the following equation:

21-4

Example 21-19 (Outside basis<Inside

basis & money and hot assets)
Suppose CCS makes the following distribution to Greg in
liquidation of his CCS interest. Greg's basis in his CCS
interest as of the liquidation is $334,000, including his
$66,000 share of CCS's liabilities. What is Greg's
recognized gain or loss on the distribution? What is Greg's
basis in the distributed assets following the liquidation?

21-5

Outside basis<Inside basis &

Other property included

Step 1: The partner first assigns a basis to any money, inventory, and
unrealized receivables equal to the partnership's basis in these assets. The
partner also assigns a basis to any other property equal to the partnership's
basis in the other property distributed.
Step 2: The partner then allocates the required decrease (outside basis less
partnership adjusted basis in distributed assets) to the other property that
has unrealized depreciation to the extent of that depreciation to eliminate
inherent losses.
Step 3: If any required decrease remains after accounting for the inherent
losses in the distributed assets, the partner then allocates it to all other
property in proportion to their adjusted bases. The adjusted bases used in
this step are the bases from Step 2. We can determine the allocation as
follows:

21-6

Example 21-21 (Outside basis<Inside

basis & Other property included)
Suppose CCS makes the following distribution to Greg in
liquidation of his CCS interest. Greg's basis in his CCS
interest as of the liquidation is $334,000, including his
$66,000 share of CCS's liabilities of $66,000. What is
Greg's recognized gain or loss on the distribution? What is
Greg's basis in the distributed assets following the
liquidation?

21-7

Homework
30,

31, 34, 46, 47;

21-8