[rvcpa]

I am extremely confused on liquidating and non liquidating distributions. Can someone help? I feel like there are so many rules for Corps and partnerships for recognizing gain and what the basis is, etc. Can someone just dumb it down for me?

[Anonymous]

In liquidations you are eliminating any capital they have left (down to $0). You first will subtract any cash received then the rest is attributed to the property received in order to get their capital balance to zero. If their balance is $100,000 and they receive $60,000 in cash, then regardless of value of the property, it will be be worth $40,000 in order to be completely liquidated.

In non-liquidations you are not necessarily eliminating all of the capital. In the same scenario, if you receive $20,000 in cash and NBV of property of $30,000 then the account is reduced to $50,000. Say you received $20,000 in cash and NBV of property of $90,000 then the property is accounted for at $80,000 because you can't have a negative basis.

Liquidating- Must “zero-out” account

Non-liquidating- Stop at zero

[rvcpa]

Drewman that is probably the clearest and easiest way someone has explained this topic to me. Thank you.

Can you explain how gains are calculated? Are these rules similar for corps and partnerships? sorry but I am dumb when it comes to this

[Anonymous]

Partnerships are pass-thru entities and the partners are taxed when they earn it NOT when it is distributed. C Corporations are completely different since they are not pass-thru entities and are not comprised of partners.

Therefore, non-liquidating distributions are primarily non-taxable. The exception is if there is a gain on cash distributed. Ex. $100,000 interest in partnership and they receive a non-liquidating cash distribution of $120,000. Then, the $20,000 is the gain.

The same rues also apply to liquidating distributions.

Hope this clears it up!

[Author]

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