A liquidating distribution is an actual or constructive distribution that terminates a partner’s entire interest in partnership. Generally, neither a partnership nor a partner recognizes gain or loss when the partnership distributes money or other property to liquidate the partner’s interest in the partnership.
731(a) Partners
In the case of a distribution by a partnership to a partner—
Gain shall not be recognized to such 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, and
Loss shall not be recognized to such partner, except that upon a distribution in liquidation of a partner’s interest in a partnership where no property other than that described in subparagraph (A) or (B) is distributed to such partner, loss shall be recognized to the extent of the excess of the adjusted basis of such partner’s interest in the partnership over the sum of—
Any money distributed, and
The basis to the distributee, as determined under section 732, of any unrealized receivables (as defined in section 751(c)) and inventory (as defined in section 751(d)).
Any gain or loss recognized under this subsection shall be considered as gain or loss from the sale or exchange of the partnership interest of the distributee partner.
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