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Partnership tax law is charged with taxing these complex business arrangements conceived by business owners.At the heart of this complexity is the requirement that the tax consequences of a partnership’s operations inure to the benefit or detriment of those partners who are economically at risk—a union of tax consequences and economic consequences.Any liquidating distribution you receive is not taxable to you until you have recovered the basis of your stock.After the basis of your stock has been reduced to zero, you must report the liquidating distribution as a capital gain.Thus a partnership for tax purposes is a person, it can sue and be sued and can conclude legal contracts in its own name.The entity concept governs the characterization "income, gain, losses and deductions from the partnership operations, are initially determined at entity level. entities may also be eligible for treatment as partnerships.Aggregate and Entity Concept The Federal income taxation of partners and partnerships is set forth under Subchapter K covering Sections 701–777 of the Code.Subchapter K represents a blending of the Aggregate and Entity concepts.
While Subchapter K is a relatively small area of the Internal Revenue Code, it is as comprehensive as any other area of business taxation.
The rules governing partnership taxation, for purposes of the U. Federal income tax, are codified according to Subchapter K of Chapter 1 of the U. Internal Revenue Code (Title 26 of the United States Code). Flow-through taxation means that the entity does not pay taxes on its income.
Instead, the owners of the entity pay tax on their "distributive share" of the entity's taxable income, even if no funds are distributed by the partnership to the owners.
Whether you report the gain as a long-term or short-term capital gain depends on how long you have held the stock.
If you acquired stock in the same corporation in more than one transaction, you own more than one block of stock in the corporation.
After the basis of a block of stock is reduced to zero, you must report the part of any later distribution for that block as a capital gain.