New Form 7217 for Partnership Distributions

A current distribution from a partnership to a partner is any distribution that does not completely retire a partner’s interest in the partnership. A current distribution can either reduce the partner’s capital account or can reduce the partner’s ownership interest in the partnership.

Gain will not be recognized by a partner in a current distribution unless money is distributed. Gain is recognized only if the amount of money received exceeds the partner’s adjusted basis in the partnership.

A part ner’s basis for property (other than money) received in a current distribution is the partnership’s adjusted basis in the property. The property’s basis is limited to the partner’s adjusted basis in the partnership reduced by any money received in the same transaction. [IRC §732(a)]

A liquidating distribution retires a partner’s interest in the partnership. A series of payments made as part of a liquidation plan are all treated as liquidating distributions. A partner will recognize gain on a liquidating distribution to the extent that money distributed exceeds the partner’s adjusted basis in his or her partnership interest.

A loss on a liquidating distribution can be recognized if cash, unrealized receivables, or inventory items are received by the partner, and the total amount received is less than the partner’s adjusted basis. If any other property is distributed to the partner, the partner cannot recognize a loss. The partner’s entire interest in the partnership must be liquidated to recognize a loss on the distribution.

Beginning for tax year 2024, Form 7217,Partner’s Report of Property Distributed by a Partnership,must be filed by any partner receiving a distribution of property from a partnership in a non-liquidating or liquidating distribution to report the basis of the distributed property, including any basis adjustment to such property as required by IRC section 732(a)(2) or (b). The form must be filed regardless of whether there is a basis adjustment in the hands of the partner as a result of the distribution.

Form 7217 is not filed if the distribution consisted only of money or marketable securities treated as money. Also, a partner should not file Form 7217 to report payments for services under IRC section 707 (guaranteed payments) or for transfers that are treated as disguised sales.

Form 7217 must be attached to the partner’s tax return for the tax year the partner actually received (not constructively received) distributed property subject to IRC section 732.