Partnership liquidating distribution and example
736(a), any gain or loss recognized by the partner is treated as having resulted from a sale or exchange of the partner's partnership interest (i.e., generally capital gain). 736(a) payments generally include payments (determined with or without regard to the income of the partnership) which are paid for either 1) unrealized receivables, or 2) partnership goodwill where payments for goodwill are not called for in the partnership agreement.
However, the Omnibus Budget Reconciliation Act of 1993 (OBRA '93) precludes IRC Sec.
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Example 3: Partners A and B each have a basis of ,000 in their respective partnership interest. According to this ruling, such adjustment must be made by the recipient partner according to the amount and timing of the recognition of gain and loss on such distributions. 734(b) as it relates to certain deferred liquidation payments to retiring partners or the successors of deceased partners.The author provides the background on such basis adjustments and provides many examples to help understand this complex tax area. A more sensible and equitable approach would allow the IRC Sec.734 basis adjustment at the time the partnership incurs a definite legal obligation for future liquidation payments that are fixed as to amount and timing.