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Tax consequences of liquidating a partnership

It follows that the conversion of a corporation into a LLC is not treated as a liquidation of a corporation for purposes of determining the taxable income of a company and its equity holders.

Contributor Robert Willens, founder and principal of Robert Willens LLC, writes a weekly tax column for

Accordingly, the shareholders recognize gain on the liquidation, measured by the excess of the net value of the property received over the basis of the stock surrendered in the transaction.2 However, in a private letter ruling issued by the IRS late last year, both the corporation and the distributee shareholders were absolved of any tax consequences arising from the liquidation of the corporation.

The reason: the entity’s brief stint as a corporation was, in the final analysis, disregarded for tax purposes.

In the ruling, a partnership required access to “new capital and equity” for the purpose of making acquisitions in its expansion efforts.

Accordingly, a corporation was formed based on a “plan of conversion” that transformed a partnership to a corporation.

518 comments

  1. Tax Effects of LLC. Gain is recognized by a member in an LLC classified as a partnership on the receipt of a liquidating distribution to the. The liquidation of.

  2. Partnership distributions include the. of the current year's earnings is treated as a distribution received on the last day of the partnership's tax year.

  3. The Tax Consequences of Partnership Break-Ups A Primer on Partnership Sales and Liquidations

  4. Liquidation Without Tax Consequences. disregarded for tax purposes. In the ruling, a partnership required access to “new capital and equity” for the purpose.

  5. When a business operates as a partnership, the partners each report a percentage -- which is usually the same as their percentage of ownership -- of annual earnings.

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