Report cash liquidating distributions

A partnership’s income, losses, deductions, and credit are passed through to the partners for Federal tax purposes and taxed directly to them, regardless of when income is distributed.[1] Since the partners have already paid tax on the income when it is earned, a complex system of rules applies to prevent double taxation when the income is later distributed to the partners.

These rules (a) allocate the partnership’s income, losses, deductions, and credit among the partners and (b) adjust basis to reflect each partner’s allocation of those items.

See Adjusted Basis under Basis of Partner's Interest, later. A partnership generally does not recognize any gain or loss because of distributions it makes to partners.

In the typical situation, a generation-skipping trust (from one of your grandparents) would normally not receive a stepup at the time the assets are distributed to you.

It is calculated by comparing the cumulative nondeductible contributions to the balance of all IRA accounts in your name. Your ,000 distribution will result in just ,000 of taxable income because ,000 (,000 X .30) is excluded.

For instance, say over the years you have made ,000 of nondeductible contributions to an IRA worth ,000 and have a second IRA that never received any nondeductible contributions that is also worth ,000. In future tax years, ,000 is left to use when figuring the taxable amount of withdrawals.

If the partner acquired the interest in exchange for a contribution to the partnership, his basis generally equals the amount of money and the partner’s adjusted basis in any property contributed to the partnership.[2] If the property is subject to indebtedness at the time of the contribution, the partner’s basis is reduced by the portion of the debt that is assumed by the other partners.[3] If the partner acquired his interest in exchange for services, his basis equals the value of services provided.[4] If the partner purchased his partnership interest, his basis equals his cost.[5] The partner’s initial basis is adjusted to give effect to transactions affecting the partnership.

The partner’s basis in his partnership interest in increased by: These basis adjustments depend in large part on the allocation of partnership income, gains, losses, deductions, and credit among the partners.

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