Partnership nonliquidating distributions

As a result, the tax effects of a partnership that makes liquidating distributions only impacts the partners who receive them.

To be taxed as a liquidating distribution, however, a partner's interest in the partnership must terminate.

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Example: David and Daniel are 50/50 partners in ABC LLC.The only way retained earnings can increase is by increasing the profit earned from company sales.Retained earnings play an important role in small businesses for several reasons.Partners, however, can only take a loss on their returns if it's solely the result of a liquidating distribution of cash, outstanding partnership receivables or inventory items.If the partnership distributes property -- anything other than cash and property treated as cash -- during its liquidation, it has no immediate tax effect.

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