Answers · Partnerships · Form 1065
How Should Partner Distributions Be Recorded?
Cash partnership distributions are generally tax-free to the extent of outside basis, with excess cash generally producing gain; special rules can apply.
This question is answered in full on the main page for it.
How it works
The rule, and what it turns on.
Distributions reduce outside basis and liability reductions can be deemed cash distributions.
Example
$70,000 outside basis less $30,000 cash distribution generally leaves $40,000 basis.
Common mistakes
What we see go wrong, and what we do instead.
- Using capital account as outside basis.
- Letting basis go negative.
A better approach
- Update outside basis before every large distribution.
Authority
Where this comes from, so you can check it.
IRC §§731-733 and 751; IRS Publication 541. IRC §§705, 722, 733 and 752; Treas. Reg. §§1.705-1 and 1.752-1 through -5; IRS Publication 541.
Educational information, not individualized tax advice. Treatment depends on your facts, entity classification and tax year, and IRS instructions change. Confirm your own position with us before relying on it. Mint Associates does not provide legal services.
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