3.6 Distribution from Partnership

1. Nonliquidating (Current) Distribution

1) General rule: nontaxable

2) Basis of property distributed by the partnership: NBV

3) Reduction in the partner's basis for the partnership interest

4) The assigned basis may not exceed the partner's basis for the partnership interest
(!) Gain recognized by the partner

2. Liquidating (Complete) Distribution

1) Complete withdrawal (liquidation)
(!) Loss recognized by the partner

2) Retirement or death of the partner
(1) Payment for a partnership interest
(2) Other payments: ordinary income

3) Sale of the partnership interest
(1) General rule: capital gain/loss
(2) Hot assets (appreciated inventory or unrealized receivable): ordinary income
(3) Mid-year change of ownership