Tax Analysts provides news, analysis, and commentary on partnership distributions tax. Some corporations regularly distribute cash to their shareholders. Section 301 governs the distribution of property, including cash, by a corporation to its shareholders. Section 316 provides that distributions are treated as dividends to the extent that they don’t exceed the earnings and profits of the corporation.
When a partnership makes a distribution to one of its partners, the partner generally only recognizes gain to the extent the cash exceeds the adjusted basis of the partner’s interest in the partnership (many partnership distributions are merely considered a return of capital and not taxed on receipt). Section 751 contains an exception to this general rule for the distribution of so-called hot assets. Cash distributions made by a partnership to a partner are separate from the share of partnership income allocated to the partner on a Schedule K-1 each year.
The tax treatment of distributions from a tax-advantaged investment vehicle – either for retirement or education – depends on whether or not they’re qualified. Qualified distributions are generally exempt from federal income taxes.
Tax Analysts covers regulations, notices, and legislative proposals related to taxation of partnership distributions. See, for example, the proposed hot asset regs, the excess distribution test in the anti-inversion notice, and the failed proposal to tax earnings on section 529 qualified tuition plans.
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