Liquidating and nonliquidating distribution
Distributions from a partnership fall into two categories: liquidating distributions and nonliquidating (or current) distributions.
All other distributions, including those that substantially reduce a partner’s interest in the partnership, are governed by the nonliquidating (current) distribution rules.
A has held his stock for three years, and his stock basis is ,000. The corporation cannot afford to redeem the stock entirely for cash because its cash balance of ,000 must be used primarily to service real estate debt.
However, the shareholders agree that J can distribute one of the tracts of land to A (see the exhibit).
Despite the tax advantages, investors who receive liquidation dividends often find that they do not cover their initial investment.
DQ #1 Liquidating and Nonliquidating Distributions Due Day 2 Wednesday ____________________________________________________________ _______________________________ Question: What is a liquidating distribution? A liquidating distribution is a single distribution, or one of a planned series of distributions, that terminates a partner’s entire interest in the partnership.
When multiple properties are distributed, the corporation computes gain on an asset-by-asset basis (Rev. Gain attributable to capital assets and certain property used in a trade or business (Sec. Practice tip: Corporations generally report nonliquidating distributions to shareholders on Form 1099-DIV, Dividends and Distributions (Sec. Example 1: A, B, C, and D each own 2,500 shares of J Corp., a C corporation real estate development company.
A disagrees with the other shareholders and wants the corporation to redeem his stock for ,000.
Instead of distributing the I stock, the corporation should sell it and distribute the resulting sales proceeds to E.
E does not care what assets she receives as long as they have a total value of 5,000. However, the shareholders have agreed to distribute a parcel of land held for investment purposes and stock in a publicly traded company, I, Inc., to redeem E's shares.