Form 7217, Partner’s Report of Property Distributed by a Partnership, helps the IRS determine the basis or adjusted basis in a current property distribution in order to fight tax avoidance through basis-shifting transactions. The form is not required for all distributions, so you need to know when it should be filed, the information to be reported and how it is reflected on a partner’s income tax return.
Below, you’ll find a few of the top questions from a recent webinar on the topic and their accompanying answers. If you choose to attend the on-demand version of this webinar, you can access the full recording and the entire list of Q&As.
Q: Will a cash distribution qualify as property distribution?
A: No, property is items such as real estate or equipment. However, cash is not just an amount of money received. For instance, a decrease in a partner’s share of partnership liabilities is considered a distribution of cash to the partner. Cash also includes marketable securities. See §731(c) for details.
Q: Are partners’ guaranteed payments considered distributions as well?
A: No, they are not. The form’s instructions remind taxpayers - “do not file Form 7217 for payments to you for services other than in your capacity as a partner under §707(a)(1) or for transfers that are treated as disguised sales under §707(a)(2)(B).”
Q: If a partnership distributes cash (money) and real estate property to a partner on the same day, do you need two Forms 7217?
A: No, as seen on Form 7217, distributions made on the same day that consist of both cash and property are reported on the same Form. In Part 1, cash distributions are reported on Line 5a (December 2024) because they reduce basis FIRST as part of the ordering rules of §1.704-1(d)(2). The property is then reported on the form.
Q: If this is a liquidating distribution, is the calculation and reporting of gain handled differently?
A: Although the treatment of liquidating and current distributions is similar, one major difference exists. In both types, cash distributed that exceeds the partner’s outside basis results in recognized gain. In a liquidating distribution only, taxable loss can also be recognized under certain circumstances.
To learn more about navigating the rules and responsibilities of the new Form 7217, you can watch our on-demand webinar. NATP members can attend for free, depending on membership level! If you’re not an NATP member and want to learn more, join our completely free 30-day trial.
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Information included in this article is accurate as of the publish date. This post is not reflective of tax law changes or IRS guidance that may have occurred after the date of publishing.