Tax consequences of liquidating

20-Dec-2019 18:42 by 7 Comments

Tax consequences of liquidating - dating sites without paying in chennai

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However, the differences in tax consequences between a sale and liquidation can be quite significant.

In a sale, by contrast, any payment received upon a purchase of a partnership interest that is attributable to partnership goodwill is generally treated as capital gain and is not deductible by the remaining partners.

The collateral consequences of a liquidation also often tend to be more favorable than the collateral consequences of a sale.

By contrast, a liquidation of a partner’s interest in the partnership will not cause such a termination, even if the partner has a 50-percent or greater interest in the partnership.

It should be noted that several seemingly ancillary tax factors can alter the analysis in choosing between sale and liquidation treatment.

Each taxpayer should seek advice based on the taxpayer's particular circumstances.

hen a partner withdraws from a partnership, it usually does not matter to the principals whether the withdrawing partner receives compensation for his partnership interest from third parties, from the partnership, or from the remaining partners themselves.

In many cases, structuring a partner’s withdrawal as a liquidation will provide more favorable tax treatment than if it is structured as a sale to the remaining partners.

This is particularly the case for partners who derive no significant benefit from having their gains classified as capital gains.

In a liquidation, these payments will be taxed as ordinary income to the distributee (departing partner) under Section 736(a) of the Code, and the remaining partners will receive ordinary deductions.

However, if the transaction is instead structured as a sale, the departing partner will still have ordinary income under Section 751(a), but the remaining partners will receive no deduction.

(In the case of “substantially appreciated” partnership inventory, the departing partner will have ordinary income regardless of whether the transaction is a sale or liquidation.) Furthermore, whereas the remaining partners will receive a cost basis for the departing partner’s share of the inventory if the transaction is a liquidation, the remaining partners in the case of a transaction structured as a sale will be able to increase their basis only if a Section 754 election is in effect.