Cash basis liquidating distributions

A more sensible alternative is to adopt an approach that would allow the IRC Sec. 12 (2/16/93), with respect to the special basis adjustment available to a partnership under IRC Sec. Although the new revenue ruling explains the IRS's stance on the issue more clearly, it unfortunately will lead to unfair results at the partnership level in many instances.

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755, which generally requires that any positive or negative IRC Sec.

734 basis adjustment be allocated in a manner that reduces the difference between the fair market value and adjusted basis of partnership assets. 734 basis adjustment must be made only to the partnership's remaining capital and IRC Sec. Where assets from both classes are distributed, any resulting IRC Sec.

A new revenue ruling by the IRS specifies the timing of basis adjustments available to partnerships under IRC Sec. Such adjustment is to be made in accordance with the amount and timing of the recognition of gain or loss on such distributions by the recipient partner.

734(b) in connection with certain deferred liquidation payments to a retiring partner or a deceased partner's successor. Although this ruling clarifies the IRS's position on the issue, in many cases it will produce an unfair result at the partnership level.

736(a) treatment for liquidation payments where capital is a material income producing factor.

Such payments must be treated as made in exchange for the partner's interest in partnership property under IRC Sec. Finally, except for disproportionate distributions under IRC Sec.

736(a), any gain or loss recognized by the partner is treated as having resulted from a sale or exchange of the partner's partnership interest (i.e., generally capital gain). 736(a) payments generally include payments (determined with or without regard to the income of the partnership) which are paid for either 1) unrealized receivables, or 2) partnership goodwill where payments for goodwill are not called for in the partnership agreement.

However, the Omnibus Budget Reconciliation Act of 1993 (OBRA '93) precludes IRC Sec.

Tax Treatment of Partnership Distributions IRC Sec.

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