Partnership liquidating distribution marketable securities

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This would happen when a partnership transfers property to a partner, then the partner makes one or more transfers of money or other consideration to the partnership such that, when viewed together, there has been a sale or exchange..Some or all of the value of the security over the partner's outside basis prior to the distribution is a taxable gain.A disguised sale occurs when a partner transfers property to a partnership and then receives a distribution of money or other consideration from the partnership such that, when viewed together, the transaction is more properly treated as a sale or exchange. partnership on March 28, 2004 in exchange for a one-third interest in Eagle.At the time of the transfer, land J was worth 0,000 and had an adjusted basis ,000. made a special distribution of 0,000 in cash to Janet.This could include marketable securities not marketable when acquired by Royal Monarch or perhaps stock purchased through a private placement, but which might go public in the near future. Conclusion If Chuck wishes to avoid recognizing gain on the liquidation of his partnership interest in Royal Monarch Company, the tax adviser should counsel against distributing all 300 shares of the partnership's IBN-TELco stock to Chuck. Because of this "marketable securities equals money" rule, if Chuck wants to avoid gain recognition on the distribution, his tax adviser should suggest the parties consider distributing another mix of assets. This mix should include other investment assets that will be treated as property.

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Chuck has asked that these shares be distributed to him in complete liquidation of his partnership interest.

Janet takes an initial outside basis of ,000 in the partnership.

It is also possible to have a disguised sale of property to a partner.

For securities acquired in a nonrecognition transaction, if the value of money and marketable securities distributed in a nonrecognition transaction is less than 20% of the total value of all property transferred and the partnership distributed the security within five years of either the date of acquiring the security or (if later) the date the security became marketable, none of the distributed security will be treated as money under Sec. In this case, however, when Royal Monarch purchased the stock, IBN-TELco was publicly traded.

Moreover, because it had invested in real estate as well as in limited partnerships conducting other business ventures, it did not qualify for the "investment partnership" exception. 1.731-2(b)(1), all marketable securities held by a partnership are treated as marketable securities of the same class and issuer as the distributed security. If Royal Monarch sold all of its IBN-TELco stock, it would recognize ,000 of gain (the amount by which the ,000 FMV exceeds its ,000 basis).

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