closing partnership and asset entry

[ljwalters]

Client died and partnership closed,  Can the assets to converted to personal use.

 

Partnership is Husband and wife. partnership required by CO.

Husband died, everything goes to wife.

She wants to just give the equipment to his son.

 

 

[Abby Normal]

Yes, it's not a taxable event to distribute assets to partners, like it is with S corps & C corps.

[ljwalters]

Thanks

[Pacun]

Let me see if this is a taxable event.

 

Two children start a lemonade stand and form a partnership. One child bring in 1 pound of sugar and the other some lemons and water. They become so popular and the next year, they buy(without injecting) two huge refrigerators and they spend $1,000 in lemons and they freeze them. They also buy 900 kilos of sugar. When they do the partnership return, they each get $500 in ordinary income because the partnership spent the money in the refrigerators, lemons, and sugar. The following year a partner dies and everything is converted to personal use by the surviving partner.

 

I doubt this will be a non-taxable event.

Edited February 19, 2015 by Pacun

[jklcpa]

Yes, it's not a taxable event to distribute assets to partners, like it is with S corps & C corps.

 

That's not always true.  It can be taxable if there is a negative capital account.  Even if no money changes hands, the fact that the partner is relieved of that negative capital account is a deemed distribution that is taxed as ordinary income.  

[ljwalters]

The capital account is not negative.

Partnership only open 8 months.  All the assets were purchased from the SCorp closed last year and Capital gains paid.

Main partner ( builder of custom product) gets cancer, gets sick, dies.

Refunds made out of personal account which also adds to capital account.

So now NO negative capital account. 

 

The assets can be converted to personal, Right??

 

Also Wife is still trying to pay refunds out of her SS income.  Are these deductible as NOL for closed business?