Nonliquidating distributions in a partnership

If the current E&P equals or exceeds the amount of the distribution, it is a fully taxable dividend to the shareholder even if the corporation has negative accumulated E&P (Regs. Amounts treated as taxable dividends reduce the corporation's E&P balance, but not below zero.When property (rather than cash) is distributed, the amount of the dividend equals the fair market value (FMV) of the property on the date of the distribution, reduced by any liabilities assumed by the recipient or to which the property is subject (Sec. In addition, as is the case with cash dividends, the distribution must be from current or accumulated E&P to be classified as a dividend.This means that the tax rate applicable to a redemption taxed as a nonliquidating corporate distribution (taxable dividend to the extent of the corporation's E&P) may actually be 18.8% (15% 3.8%) or 23.8% (20% 3.8%).A cash distribution to a shareholder is a taxable dividend to the extent of the corporation's current or accumulated E&P. In other words, if there is sufficient current E&P to cover all distributions made during the year, all distributions are taxable dividends.Creditors are always senior to shareholders in receiving the corporation's assets upon winding up.

This is usually the case in bankruptcy liquidations.

Immediately before the distribution, Delilah's adjusted basis for her partnership interest is 0,000.

Delilah's basis in the noncash property received is: 0,000 0,000 0,000 ,000 None of the above. Rosalie is a real estate developer and owns property that is treated as inventory (not a capital asset) in her business.

The partnership will recognize a ,000 capital gain on sale of the property. During the first year of partnership operations, JT had net taxable income of ,000 and tax-exempt income of ,000.

The partnership distributed ,000 cash to Juliet.

Nonliquidating distributions in a partnership