Partnership liquidating distributions examples
Taxable income/loss is allocated so that, after the income/loss allocation has been made, the balance in each partner’s capital account shall, to the extent that is possible, be equal to an amount that would be distributed to the partner based on a hypothetical liquidation of the partnership.Distributions are made based on the waterfall calculation.When this happens, it is important to note that the targeted capital allocations can produce a counterintuitive allocation, so should be reviewed carefully each year.There is no template or formula that can be applied in each and every case, so keeping your tax team involved from day one is truly critical. We encourage you to comment below on this blog post, share it on social media or contact Kim Palmer at [email protected] a member of your service team for further discussion.
This is a fair market value concept and should not be confused with the books as maintained by the business that may or may not be on a GAAP basis.
Tax capital accounts can be different than “book” capital accounts.
The intention of the targeted capital allocations is that each partner’s book capital account reflects the amount that partner would receive upon liquidation of the partnership.
Other queries should be addressed to the Insolvency Service in the first instance.
Insolvency proceedings often involve court proceedings and practitioners may be required to convene meetings and prepare statutory reports.
It is important to note that not all of this information has to be sent to the Registrar.