@Busiest this is a post from @Tax Lady back in 2014 I think it would be very beneficial for all of us.
1) Non-liquidating – Corps.
Shareholder basis = AB (adj basis) of property transferred
+ gain recognized (only if less than 80% ownership)
– boot rec'd (such as assumption of a liab.)
= shareholder basis
**if shareholders have 80% control after a property transfer, no taxable event occurs
**if liability exceeds basis on contributed property to corp. then gain is recognized
**a non-liquidating distribution of a corp will reduce the retained earnings of the corp and are taxable as a dividend to the shareholder if E&P exists. (current E&P); distribution of accumulated E&P is a return of basis and distribution of any remainder is a capital gain.
2) Liquidating Dist. – Corps
Property distributed uses FMV, not AB
If a corp distributes property with a FMV below basis, there is no loss
If a corp distributes appreciated property that is capital in nature, then it's a capital gain to the corp
If a corp distributes appreciated property that is non capital, then it's ordinary income
3) Non-liquidating partnership distributions
-property exchanged for a partnership interest has no gain/loss unless the property has a liability attached that exceeds basis, then a capital gain is recognized by the partner (which also increases their basis)
-again property is valued using partner's adj. basis
-If a partner exchanges his services in exchange for a partnership interest, then it is taxable to the partner (FMV of service * p-ship interest); Also, if partner receives assets instead of cash for payment, then use FMV of assets to determine amount of income to partner
-a partner that purchases his p-ship interest uses the amount of purchase as his basis and if a p-ship interest is gifted to a partner, then use the gift basis rules
– guaranteed payments do not affect p-ship basis
-liabilities taken on by p-ship from the partner, decrease the partner's basis, but will increase their basis by their percentage of the amount of debt
4) Liquidating distributions for a p-ship
-property distributions take basis to zero, never below
-liquidating dist. are the only way a loss can occur
-things that cause a loss: Cash, or hot assets
-hot assets = unrealized receivable, and appreciated inventories and these cause an ordinary loss
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