Consequences of liquidating rocknrolldating
This Portfolio analyzes not only the relevant statutory and regulatory materials, but also the large body of case law, revenue rulings, and other IRS pronouncements, including technical advice memoranda and private letter rulings, that are all part of this, unfortunately complex, body of tax law. Part I, Introduction, briefly discusses important general principles not directly related to distributions, but that will nevertheless frequently be referred to throughout the Portfolio, including partnership capital accounts, §704(c) and reverse §704(c) allocations. As with all other aspects of partnership taxation, the dual nature of a partnership for tax purposes—as at times an aggregation of its partners, and at times an entity—complicates the discussion, particularly because no one, including the author, has been able to articulate a comprehensive statement of when the aggregate, and when the entity, aspect should predominate. Distributee's Basis, Holding Period and Character 1. Inside Basis Reduction for Corporation Distributed to Controlling Corporate Partner 2. Basis Adjustment Without § 754 Election: Current Distributions-§ 732(d) D. Further complication arises because the “tax” partnership includes not only entities organized as general partnerships or limited partnerships (“LP”) under state law, but also the newer forms of limited liability partnerships (“LLP”), initially primarily for professionals, and the increasingly popular limited liability company (“LLC”). Distributee's Transferred Basis in Distributed Property a. Character and Holding Period of Distributed Property a. The newer forms, particularly the LLC, have many more entity characteristics, particularly when full advantage of the freedom to contract that is part of the latest revisions of the governing statutes in most commercial states is taken into account, so that it is hard to distinguish them from corporations. All but the traditional general partnership have limited liability, and a general partnership can, in most states, achieve limited liability by a simple filing to become an LLP, but, particularly for professionals that limited liability protects against vicarious liability but not against liability for one's own malpractice, including, of course malpractice in giving advice related to partnership tax matters.
When the subsequent capital distribution is received, the apportioned amount of base cost attributable to the part disposal is (R9/R10 x R10), or R9. By separating the two transactions, the application of the legislation produces a result that is in line with the commercial realities of the transaction.
The distribution of profits by a company being liquidated, wound up or deregistered is considered to consist of dividends to shareholders and a return of their investment in the company.
However, these distributions can have unforeseen capital gains tax consequences for the shareholder receiving the distribution.
Part I then addresses the vexing question of distinguishing a partner withdrawal from sale of a partnership interest (which are considered in more detail in 718 T. Partnerships—Disposition of Partnership Interests or Partnership Business; Partnership Termination).
Part I concludes with a brief discussion of the general anti-abuse regulations.