K-1 from Bankrupt Prtnrshp

[goodcat]

T/P received K-1 from a Real Estate Partners Equity Fund in bankruptcy. The K-1 had no entries in any of the boxes nor any information as to any other entries. Later T/P received a statement (not a K-1)from a liquidating trust showing distributions of 4333. Are these distributions from the liquidating trust taxable to the T/P?

[Roland Slugg]

[Is this distribution] from the liquidating trust taxable to the T/P?

It is a return of capital. It reduces his basis in his partnership interest, but not below zero. Once his basis is fully recovered, i.e. reaches $0, any excess received is taxed as capital gain, either ST or LT. If the distributions are less than his basis, and he is notified that there will be no more distributions, his unrecovered basis is a ST or LT capital loss.