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B. Winn’s basis in his interest in Countryside immediately before the 12/26/00 distribution
$12,879,151 Winn’s basis as of 1/1/00
7,249,881 Net increase in Winn’s share of liabilities. See (1) below.
(59,942) Money distributed to Winn. See (2) below.
(131,500) Winn’s share of Countryside’s loss. See (3) below.
19,937,590 Winn’s basis in his Countryside interest immediately before the 12/26/00 distribution
(1) As calculated in II.A., Winn’s share of Countryside liabilities increased
from $14,892,855 as of 1/1/00 to $22,142,736 immediately before the 12/26/00
distribution, a net increase of $7,249,881.
(2) Winn received a distribution during that period of $59,942 in money per Schedule K-1.
(3) Winn’s share of taxable income/(loss) for that period was ($131,500) per Schedule K-1.
III. Effect of distribution to Winn in redemption of his interest in Countryside
A. The 12/26/00 distribution to Winn in redemption of his interest in Countryside reduced Winn’s share of
liabilities as follows:
$22,142,736 Winn’s total share of liabilities before the 12/26/00 redemption
(2,485,974) Winn’s continued liability. See (1) and (2) below.
19,656,762 Net decrease in Winn’s share of liabilities
(1) Under sec. 1.752-1(f), Income Tax Regs., only the net decrease in a partner’s share
of liabilities is treated as a distribution of money to the partner.
(2) Countryside distributed a 72.88-percent interest in CLPP to Winn in redemption of
his interest in Countryside. As a result, Winn was relieved of his $22,142,736
share of Countryside liabilities, but Winn retained a liability representing his
share of CLPP’s share of MP’s liabilities. Winn’s share of these liabilities was
$2,485,974, computed as $3,445,506 x 99% x 72.88%. Thus, the net decrease in Winn’s
share of liabilities was $19,656,762.
B. Because the $19,656,762 decrease in liabilities was less than Winn’s $19,937,590 basis in his interest in
Countryside, Winn recognized no gain on the distribution in redemption. See (1) below.
(1) Under sec. 731(a), no gain is recognized upon a distribution to a partner except
to the extent that any money distributed exceeds the adjusted basis of such partner’s
interest in the partnership immediately before the distribution.
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Last modified: March 27, 2008