Partnership Taxation: Partnership Distributions - Lesson 1

Описание

In this video, 4.05 – Partnership Taxation: Partnership Distributions – Lesson 1, enjoy a lesson on partnership distributions with Roger Philipp, CPA, CGMA.

When a partner receives a distribution from a partnership, either in the form of cash or property, there are some key questions to answer: What is the partner’s basis in the received asset? How does the distribution affect the partner’s outside basis in the partnership? What amount of income, if any, must the partner recognize as a result of the distribution? The rules for answering these questions that arise from partnership distributions change according to whether a particular distribution consisted of cash, property, or both.

Differences between current distributions (also known as non-liquidating distributions) and liquidating distributions must also be considered. Roger explains and illustrates the difference between inside basis and outside basis regarding partnerships, then goes into a few non-liquidating distribution examples to show how the receipt of a cash or property current distribution would affect the partner’s outside basis, and in some cases, require the reporting of a capital gain for tax purposes.

Not sure what happens if a partner with an outside basis of $10 received a cash distribution of $2? Of $15? How about if the distribution was in the form of property? Watch this lesson to find out the results of these current partnership distributions.

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Video Transcript Sneak Peek:

Okay, let's talk about Partnership Distributions. Now with Partnership Distributions that means "Hey! The partnership is giving me cash. The partnership is giving me property. How much goes into my personal balance sheet?" What we're looking at is "What is my basis that I'm gonna pick this asset up for?"

So a couple of questions. First of all, what is the basis in the received asset? What does it do to my outside basis? And does it create income? Do I have some sort of income that I have to recognize? So, let's kind of draw this picture that we did earlier. And we'll do it again and then we'll go through a bunch of beautiful examples to illustrate what it is we're talking about.

So, we've got here, this is the Partner. And remember, I'm putting an asset into the Partnership. Then I take some, my share, out. In other words, I own one third or 50 percent or 20 percent. So let's say I take an asset, carry over basis 10 fair market value 20, I put it in. What is it? Carry over basis. So they pick it up at 10.

Let's say we have income of 60 bucks. 60 dollars. So my basis is 10. That's outside the Partnership. Then, we have 60 dollars. I get 10 percent. I pick up six bucks so my basis is now 16. This is my basis outside the Partnership. But the basis of the property to the Partnership is inside and that basis is 10 bucks. So you can see the outside, my basis, standing outside the Partnership, is now what my initial basis was plus my share of the income. Minus this, plus that, whatever, is 16. That's my outside, that's the word outside. That is this number way over here. Outside basis.

However, the Partnership is now gonna distribute an asset to me. When they distribute this asset to me we have to look at, "What is the basis to them inside? What is my basis outside?" So when I talk about inside/outside? That's what you need to understand. So we're gonna go through a bunch of scenarios.

The rules are different for cash. The rules are different for property. So we've gotta understand the rules for cash. We have to understand the rules for property. And we've gotta see, is there gonna be some sort of income? So the question is gonna be "what is my basis in the newly received asset and is there any income?" So now the Partnership is gonna give me an asset. So that is called the basis in received asset. How much do I pick it up for? Does it create any kind of income? That's what we're looking at with Partnership Distributions.

In your notes it says, "A distribution of assets from a Partnership to a Partner reduces the Partner's basis in the Partnership. The amount by which the Partner's basis has reduced depends on several factors." Then it says "Non-liquidating, also called a Current Distribution, the Partner continues in the business after the distribution."