Corporation Partnership

Entity
Formation Basis of Property transferred Basis of Property contributed
Plus: FMV of Services rendered Plus: FMV of Services rendered
Minus: Liability Assumed by Corporation Minus: Liability Assumed by Partnership
Initial
Basis: Plus: Gain Recognized by S/H Plus: Gain Recognized, b/c of Investment Co. rules
1. Boot recv'd:
S/H & Partner a. Gain = Lesser of: Plus: Share of Partnership Liabilities assumed
b. Realized Gain or Boot recv'd

2. Liability Assumed by Corp:

 [Gain Recognition, 2 Exceptions]
a. Tax Avoidance or No Bona-Fide Business
Purpose
b. Debt relief, Exceeds, Basis of Property
transferred.

Minus: Boot recv’d: Cash & FMV of Non-Money Boot

Note:
1. S/H Debt assumed by Corp, only affects Basis
when Debit Relief, Exceeds, Basis of Property
transferred, b/c it triggers recognition of
Gain.

Non- 1. Distribution Amount (DA) equals: 1. Non-Liquidating distribution to a Partner is Non-

Liquidating  Money recv'd Taxable event.
Distributions
 Plus: Greater of: FMV or NBV of non-money  aka: Current Distribution
Property recv'd
2. Partner's Outside Basis is Reduced by
 Minus: Liability assumed by Shareholder
 Minus: Money recv'd
Tax
Consequences:
2. DA is Dividend to extent of Corp's E&P (Current  Minus: NBV of non-money Property recv'd
and Accumulated) o ** Cannot reduce Partner Basis below
S/H & Partner  DA in Excess of E&P treated as = Return Zero
of Capital o NBV of non-money Property recv'd from
o Also reduces S/H Stock Basis, but distribution is Limited to Partner
not below zero. Outside Basis.
 Additional Excess is treated as = Capital
Gain 3. Gain Recognized on Excess Cash.
 Partner recognizes Gain to extent that:
3. S/H Basis in Property recv'd = FMV o Money recv'd, + Plus, PSHIP Debt
 ** Note, Debt assumed by S/H does not assumed by Partner
reduce Basis in Property. o Exceeds
o Partner Outside Basis
4. S/H Holding Period begins = Day after
Distribution 4. Gain is Capital Gain, on Partner Individual Tax
Rtn.

5. Note: Distributions of non-money Property

 Does not trigger Gain or Loss recognition to
Partner.

Complete 1. Recognized Gain or Loss to S/H 1. Complete Withdrawal (Liquidation)

Liquidation  Treated like S/H sold Stock to an Outside
Party. 2. Partner Basis in non-money Property recv'd from
Liquidation:
 Liquidating distribution recv'd by S/H,
treated as receiving Full Payment in  Partner Outside Basis
Tax exchange for their Stock.  Minus: Money recv'd
Consequences:
 Minus: Inventory recv'd, Basis to PSHIP
2. Amount Realized calculated as follows:
S/H & Partner  Minus: Unrealized Receivables, Basis to
 FMV of Property recv'd PSHIP
 Minus: Debt assumed by S/H  ** Must "Zero-Out" Account, meaning Partner
Outside Basis
3. S/H recognizes Gain/Loss as follows:
 Amount Realized 3. Gain recognized when
 Minus: S/H Basis in Stock Surrendered  Money recv'd, Exceeds, Partner Outside Basis
 = Gain or <Loss>
4. Loss recognized when
 Gain = Amount Realized > S/H Basis in  Basis of Assets recv'd, Less Than, Partner
Stock surrendered Outside Basis
  Loss = Amount Realized < S/H Basis in  Basis of Assets recv'd includes the
Stock surrendered following:
o Money, Inventory, or Unrealized
 S/H Basis in Property recv'd = FMV Receivables

5. Becker Pass Key: Must understand the difference

in Basis rules for Non-Liquidating and Liquidating
Distributions:
Withdrawal Basis Used Stopping
Point

Non- NBV Asset Taken Stop at Zero

Liquidating

Liquidating Partnership Must "Zero-

Interest Out" Account
(Partner Outside
Basis)

Stock 1. Redemption is Proportional = Dividend treatment

Redemption  Follow rules of Non-Liquidating
distribution

2. Redemption is Substantially Disproportionate =

SALE treatment
 Follow rules of Complete Liquidation