Partnership liquidating distributions property
The concept of taxing the contributing owner on the built-in gain in contributed property also extends to of the distribution, but the calculation is more complicated.A partner who receives a distribution of property (other than money) must recognize gain in an amount equal to the lesser of (i) the excess distribution or (ii) the partner’s net precontribution gain.Are they tired of discussing its operations with you?
The tax law also provides, however, that for purposes of applying that general rule the term “money” includes marketable securities, and any such marketable securities are taken into account at their fair market value as of the date of the distribution. At the time of liquidation each partner has a basis in his or her partnership interest of 0.
As a result, if property has been contributed to the LLC within seven years of the planned liquidation, the owners should take care to identify any built-in gain and to consider distributing any such contributed property in the liquidation to the contributing owner.
In the alternative, the owners should consider the limited exception available for liquidating distributions in which the contributing owner receives an interest in the contributed property (and no other property).
Financial instruments convertible into money or marketable securities are also marketable securities, as are financial instruments the values of which are determined by reference to marketable securities.
Marketable securities may also include actively traded interests in precious metals and interests in an entity if substantially all of the assets of the entity consist of marketable securities or money.