Taxable Partnership Distributions: Anticipating and Mitigating Tax Consequences to Partners and Members

A significant advantage that partnerships and LLCs have over other entity choices is that distributions of assets to partners and members are generally not subject to tax. In fact, IRC Section 731(a)(1) states: "gain shall not be recognized to such partner, except to the extent that any money distributed exceeds the adjusted basis of such partner's interest in the partnership immediately before the distribution." Distributions exceeding a partner's basis in a partnership can occur unknowingly. 

Marketable securities are included in the definition of money and are distributed at fair market value. Distributing marketable securities, paying down partnership liabilities, or distributing ordinary income assets, for example, can create additional, often unanticipated, tax liability for a partner at year-end. Tax professionals advising pass-through entities need to understand when distributions to partners or members could have significant tax implications.

Listen as our panelist describes situations that give rise to taxable partnership distributions. 

I. Taxable partnership distributions: introduction

II. Distributions in excess of basis

III. Reduction in partnership liabilities

IV. Disguised sales

V. Distributions of previously contributed property

VI. Disproportionate distributions

VII. Distributions of unrealized receivables and appreciated inventory

VIII. Other considerations

The speaker will cover these and other critical issues:

• How a reduction in partnership liabilities impacts a partner's basis
• Distributions of assets that are considered disguised sales
• Recognition of precontribution gain on property distributions
• Recommendations to circumvent unanticipated tax liability from distributions to partners

Learning Objectives

After completing this course, you will be able to:

• Identify distributions that are considered disguised sales
• Determine how a decrease in partnership liabilities can impact a partner's tax liability
• Decide how precontribution gains are taxed when the related property is distributed
• Ascertain steps to take to mitigate tax liability on certain distributions

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite:

  Three years+ business or public firm experience preparing complex tax forms and schedules, supervising other preparers or accountants. Specific knowledge and understanding of pass-through taxation, including taxation of partnerships, S corporations and their respective partners and shareholders.

  
  

  
  

  
  

Strafford Publications, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of Accountancy have final authority on the acceptance of individual courses for CPE Credits. Complaints regarding registered sponsons may be submitted to NASBA through its website: www.nasbaregistry.org.

IRS Approved Provider

Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).