* Assume tax sharing agreement allocates actual tax liability among members based on their positive contributions to consolidated taxable income.
Note that the net adjustments exactly equal the amounts paid by subs under tax sharing agreement.
10/15/2009 – Distributions
Distributions Received in Connection with Continuing Interest in a Joint Venture (Partnership)
Sec. 731(a)(1)—Gain recognized by a partner on receipt of a distribution from the partnership only to the extent that the amount of money received exceeds partner’s basis in the partnership interest.
Sec. 732(a)—Partner takes carryover basis in property received as a non-liquidating distribution from partnership
Exception—basis of property received may not exceed partner’s tax basis in partnership interest.
Where partner receives a distribution of cash and property, cash is treated as received first.
Reduction in partner’s share of liabilities (e.g., as a result of reduction in partner’s interest in partnership following receipt of the distribution) is treated as a distribution of money to the partner (Sec. 752(b)).
Sec. 733—Partner reduces its basis in partnership interest, but not below zero, by amount of money and tax basis of property received in distribution.
Sec. 752(a)—Liabilities assumed by partner in connection with distribution (as when property received in distribution is encumbered by a mortgage) are treated as a transfer of money by the partner to the partnership immediately prior to receipt of the distribution.
Distributions Received in Liquidation of an Interest in a Joint Venture (Partnership)
Sec. 731(a)(1)—Gain not recognized unless partner receives cash in excess of basis of partnership interest
Sec. 731(a)(2)—Loss may be recognized, but only if the distribution consists solely of cash and/or ordinary income property (e.g., inventory) with an aggregate face value/tax basis that is less than the partner’s basis in the partnership interest.
Sec. 732(b)—Basis in property received in liquidation of partner’s interest in the partnership is equal to partner’s basis in such partnership interest immediately prior to receipt of the distribution, reduced by money (including reduction in share of liabilities) received as part of the distribution.
Sec. 732(c)(1)(A)(i)—basis of ordinary income property received may not be increased above its basis to the partnership prior to receipt of the distribution (thus, the ability to deduct losses when basis of such property is less than partner’s basis in partnership interest).