Timothy is a 35 percent partner in the Total Partnership

Question: #6472

Module 6 corporation tax critical thinking complete solution correct answer key

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

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 nate distribution of the following assets to Timothy

3) Discuss the similarities and differences between the tax consequences of the operating distribution and the tax consequences of the liquidation distribution.

sets to Timothy

Solution: #6488

Timothy is a 35 percent partner in the Total Partnership

• 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 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, ...