If you serve as the trustee of a trust, you have a number of reporting obligations under the federal income tax laws, which includes the preparation of Schedule K-1 for each beneficiary.
In the event you fail to issue a K-1, you may find yourself paying a substantial amount of penalties to the IRS.
Tactical financial divorce advice is particularly critical when it comes to splitting the retirement plans.
The partnership may be able to elect to adjust the basis of its undistributed property, as explained later under Adjusting the Basis of Partnership Property.
If any gain or loss from the distribution is recognized by the partner, it must be reported on his or her return for the tax year in which the distribution is received.
Money or property withdrawn by a partner in anticipation of the current year's earnings is treated as a distribution received on the last day of the partnership's tax year. A partner's adjusted basis in his or her partnership interest is decreased (but not below zero) by the money and adjusted basis of property distributed to the partner.
Current E&P is approximately equal to the corporate taxable income minus the federal income tax assessed on it, which is then subjected to the statutory adjustments listed in IRC §312.
These statutory adjustments include deductions that reduce taxable income but do not reduce the corporation's ability to pay dividends or vice versa.