Liquidating distribution tax

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The inside basis is the partnership's tax basis in the individual assets.

The outside basis is the tax basis of each individual partner's interest in the partnership.

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Whether earnings are retained in a partnership or distributed to partners has no affect on the taxation of those earnings, since the partners have to pay tax on the earnings whether they are distributed or not.

Earnings are distributed to each partner's capital account from which distributions are charged against.

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