A nonliquidating distribution
Diana’s basis in Justice League (including her share of LLC liabilities) was 0,000 immediately prior to this distribution.
Glenda received a proportionate nonliquidating distribution from the EFG Partnership.
With respect to the timing of gain recognition from such distributions, the rules applicable to partnerships (unlike those applicable to S corporations) generally permit gain deferral.
This article demonstrates how to ensure that such distributions do not cause unexpected tax results.
Appellant computed the potential capital gains tax by assuming hypothetical annual sales of the property, and the parties stipulated to the amount of capital gains that would have been realized from the hypothetical sales. In interpreting this provision, section 25.2512-1 of the Treasury Regulations on gift tax provides, “[t]he value of the property is the price at which such property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell, and both having reasonable knowledge of relevant facts.” 26 C.
This helps ensure that the shareholder only benefits once from reductions in income earned by the S corporation.
Distributions to the shareholder are not included in the shareholder’s gross income to the extent that the distribution does not exceed the shareholder’s basis in the stock.
Because the tax consequences of distributions depend on the shareholder’s basis, it is important to keep up with changes in the shareholder’s basis over time.
The distribution consisted of ,000 cash and property with an adjusted basis to the partnership of ,000 and a fair market value of ,000.
Immediately before the distribution, Glenda’s adjusted basis in her partnership interest was ,000.
But it quickly becomes problematic when one if the two partners wants a greater share of early receipts in exchange for a lower share of back-end gains.