Liquidating distribution partnership basis
R first reduces his ,000 outside basis by the ,000 cash distribution.
His remaining ,000 of basis in his LLC interest becomes his basis in the distributed real property (Sec. Z does not recognize any gain on the distribution although the FMV of the property R receives (,000) exceeds its ,000 Example 2.
They can choose to classify the entity as a sole proprietorship by filing a Schedule C (Form 1040) listing one spouse as the sole proprietor.
A change in reporting position will be treated for federal tax purposes as a conversion of the entity.
When a business operates as a partnership, the partners each report a percentage -- which is usually the same as their percentage of ownership -- of annual earnings on their personal returns.
As a result, the tax effects of a partnership that makes liquidating distributions only impacts the partners who receive them.
There are subtle (and some not so subtle) differences between the two entities from a tax perspective as well.
Unlike a partnership, none of the members of an LLC are personally liable for its debts.In addition to taking advantage of the lower rates for individuals, the pass-through entity eliminates double taxation associated with the payment of dividends from C corporations.