Property distributed to a partner


1. Only a cash basis partnership is concerned with the problem of “unrealized receivables.”

2. The inclusion of accounts receivable of an accrual basis partnership in the determination of its “substantially appreciated inventory items” reduces the chances of the partnership being affected by Section 751.

3. A partner's interest in a partnership is a capital asset.

4. When a partner acquires an interest in a partnership by purchase, the basis of the underlying assets of the partnership must be adjusted to reflect the price the incoming partner paid for his interest.

5. Where property for which a special basis adjustment was made because a partnership interest was purchased is distributed to a nonpurchasing partner, the basis adjustment carries over to the distributee partner.

6. With respect to the allocation of a basis adjustment to partnership assets, the total fair market value of all of the assets is compared with the total adjusted basis of those same assets and the difference between the two amounts is allocated to each asset based upon its relative adjusted basis.

7. A partner who receives a current property distribution (other than cash), made pro rata to all the partners, will not have to report a gain with respect to the distribution.

8. As a general rule, property distributed to a partner, not in liquidation of an interest in the partnership, takes the same basis in the hands of the partner as it had in the hands of the partnership.

9. If the partnership agreement is silent but the partners recognize that a retiring partner had created substantial goodwill for the partnership while a partner, the retiring partner may report as capital gain so much of the payments for the partnership interest as are designated as payment “for goodwill.”

10. A partnership may elect to adjust the basis of its property merely because one partner sells an interest to another partner and there is no transfer of any partnership assets involved.

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Finance Basics: Property distributed to a partner
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