Sally Moolchan
Tax Issue
What are the tax consequence of distributions as applied to partnership, S corporation and C corporation?
Conclusion
The United State Internal Revenue Code was created to combine all the various laws relating to tax revenue into one concise document. It provided a simplify tax system for individual and business taxpayer. These tax codes help in determining the amount of tax you are required to pay and provide the basis for everything on your tax return. The IRC provided subsections K, S, and C to govern the tax consequence of distributions as applied to partnership, S corporation and C corporation. A Partnership distribution is not taxed as distributions of earnings because partnership earnings are immediately taxed …show more content…
According to IRC Sec 704(c)(1)(B), when property contributed by one partner is distributed to another partner within seven years of its contribution to the partnership, the contributing partner is treated as recognizing a pre-contribution gain or loss as if the partnership had sold the property for its fair market value at the time of the distribution. After the distribution is made, the partners adjusted basis in the partnership is decrease by the amount of money or property distributed but it cannot go below …show more content…
Liquidating distributions are comparable to current distributions in that both are generally treated as a tax-free return of capital. However, in certain circumstances, a liquidating distribution may have different tax consequence on whether distributes are required to recognize gain or loss and adjusted basis of property when it is received. IRC Sec. 731(a) (2), provides losses could be recognized with a liquidating distribution only if the liquidating distribution consists only of cash and/or Section 751 ordinary income assets. The losses are recognized to the extent that a partner’s basis exceeds the sum of the cash and the basis of the Sec. 751 property received. The excess amount will be the loss to be recognized by partners. In contrast to current distributions, the basis of property received in liquidation is the adjusted basis of the partner 's interest in the partnership reduced by any cash distributed. According to IRC Sec. 732(c), when partnership distributes two or more properties, the partner 's adjusted basis in the partnership is reduced cash distributions and then it must be allocated to the distributed
Tax Issue
What are the tax consequence of distributions as applied to partnership, S corporation and C corporation?
Conclusion
The United State Internal Revenue Code was created to combine all the various laws relating to tax revenue into one concise document. It provided a simplify tax system for individual and business taxpayer. These tax codes help in determining the amount of tax you are required to pay and provide the basis for everything on your tax return. The IRC provided subsections K, S, and C to govern the tax consequence of distributions as applied to partnership, S corporation and C corporation. A Partnership distribution is not taxed as distributions of earnings because partnership earnings are immediately taxed …show more content…
According to IRC Sec 704(c)(1)(B), when property contributed by one partner is distributed to another partner within seven years of its contribution to the partnership, the contributing partner is treated as recognizing a pre-contribution gain or loss as if the partnership had sold the property for its fair market value at the time of the distribution. After the distribution is made, the partners adjusted basis in the partnership is decrease by the amount of money or property distributed but it cannot go below …show more content…
Liquidating distributions are comparable to current distributions in that both are generally treated as a tax-free return of capital. However, in certain circumstances, a liquidating distribution may have different tax consequence on whether distributes are required to recognize gain or loss and adjusted basis of property when it is received. IRC Sec. 731(a) (2), provides losses could be recognized with a liquidating distribution only if the liquidating distribution consists only of cash and/or Section 751 ordinary income assets. The losses are recognized to the extent that a partner’s basis exceeds the sum of the cash and the basis of the Sec. 751 property received. The excess amount will be the loss to be recognized by partners. In contrast to current distributions, the basis of property received in liquidation is the adjusted basis of the partner 's interest in the partnership reduced by any cash distributed. According to IRC Sec. 732(c), when partnership distributes two or more properties, the partner 's adjusted basis in the partnership is reduced cash distributions and then it must be allocated to the distributed