Explain the difference between partnership distributions and distributive shares.
What will be an ideal response?
Partnership distributions represent the receipt of earnings that have already been taxed to the partners. They reduce each partner's basis in his or her partnership interest, and generally are tax-free. If the distribution exceeds the partner's basis in his or her partnership interest, the partner will recognize a gain equal to the amount of the excess. A partner's distributive share is the portion of the partnership's taxable and nontaxable items that are allocated to the partner for a given partnership year. Each partner must report and pay taxes on his or her distributive share. The partner's distributive share is normally determined by the terms of the partnership agreement. If the partnership agreement is silent, all of the facts and circumstances are considered when determining the partner's overall interest in the partnership. Actual partnership distributions allocated to a partner may be more or less than his or her distributive share for that partnership year.
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