Partnership nonliquidating distributions

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In 2010, Venkat, who is single and age 37, received ,000 of gross income and had ,000 of itemized deductions. Income: Gross salary and commissions from Ace Corporation ,000Rent received from tenant in Liz's rental house 13,000Dividends received on her portfolio of stocks 5,000Expenses: Unreimbursed professional dues 200Subscriptions to newsletters recommending stocks 900Taxes, interest and repair expenses on rental house 3,500Depreciation expense on rental house 2,300 What is her adjusted gross income for the year? Liz had the following items of income and expense during the current year. A major difference between partnerships and S corpo­rations involves the treatment of distributions of ap­preciated property.With respect to the timing of gain recognition from such distributions, the rules applicable to partnerships (unlike those applicable to S corporations) generally permit gain deferral.

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Although both S corporations and partnerships are now tax-favored entities, there are differences between the two.

Corporate shareholders may prefer that the distribution be treated as a dividend, allowing the corporation to take advantage of the special dividends-received deduction under Code § 243 (which allows the dividends to only be taxed once at the corporate level).

On the other hand, individual shareholders often prefer that the distribution be treated as a redemption, for three reasons: A distribution qualifies as a stock redemption only if it significantly reduces the interest of the shareholder in the corporation.

There are subtle (and some not so subtle) differences between the two entities from a tax perspective as well.

One significant difference exists with respect to distributions of appreciated property. This article previously appeared in the Tax Assessment newsletter, published by the North Carolina Bar Association, and is reprinted with permission.

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