Question

In partnership what is the difference between liquidating vs. non-liquidating distributions? Proportionate Vs, Disproportionate distribution? and cash distribution?

Answer 1

The primary code sections that deal with partnership distribution are sec 731, 732, 733, which provides the basis for distribution. The tax treatment how ever depends on whether it is a non liquidating or current or a liquidation distribution.

Liquidating Distribution:

A liquidating Distribution is a distribution that completely terminates a partners interest in partnership. The partnership making liquidating Distribution does not recognize any gain or loss , and the partner who receives, will recognize gain to the extent of money received in the distribution in excess of his outside basis in the partnership interest immediately before the distribution.

Non liquidating Distribution:

A current or non liquidating Distribution is a distribution which does not terminate a partners interest in the partnership.however a distribution is a part of series of distribution that will result in the termination of the partners interest is not a non liquidating Distribution.Thus , non liquidating Distribution iincludes both distributions of a partners distributive share of partnership income as well as distributions in partial liquidation of a partners interest .

Proportionate distribution:

A proportionate distribution is when a partner receives the appropriate share of certain ordinary income generating arrests of the partnership.

Dis proportionate distribution:

A dis proportionate distribution is when the distribution increases or decreases the distributees partnership interest in certain ordinary income producing assets.