Characterizing Partner Distributions - John R. Dundon II, Enrolled Agent
8235
wp-singular,post-template-default,single,single-post,postid-8235,single-format-standard,wp-theme-bridge,bridge-core-3.1.2,qodef-qi--no-touch,qi-addons-for-elementor-1.9.6,qode-page-transition-enabled,ajax_fade,page_not_loaded,,qode_grid_1300,footer_responsive_adv,qode-content-sidebar-responsive,qode-smooth-scroll-enabled,qode-theme-ver-30.8.8.8,qode-theme-bridge,qode_header_in_grid,wpb-js-composer js-comp-ver-7.1,vc_responsive,elementor-default,elementor-kit-269
 

Characterizing Partner Distributions

20 Jul Characterizing Partner Distributions

Posted at 00:00h in Cost Basis, Distributions, Investment Income, Retirement, Small Business, Tax Guidance & Preparation, Taxable Income by
Share


Generally if payments are in exchange forpartnership property, the amountreceived in excess of the partner’s outside basis in his/her partnership interest is taxed as capitalgain. Howeverif thepayments represent a distributiveshare of partnership income or aredeemed to be guaranteed payments,the payments are taxed as ordinaryincome.

According to Tax Court Memo 2009-243 Wallis v. Commissioner, retirement paymentsto a withdrawing partner as part ofthe liquidation of his/her partnershipinterest under §736 were considered essentially the equivalent of guaranteedpayments and taxed as ordinary income. Yikes! So be careful to take the time to document.

In order to be allocated and taxed accordingly under Reg. §1.736-1(a) (2), payments for a partner’s interest should be clearly defined as distributions for partnership property or guaranteed payments.

Tags:
, , ,
Print page


Share