Can partners write off remaining basis after dissolution of a partnership?

Yeah, well, it's a family limited partnership. The others whined about not having the money to pay the tax on the K-1 income, so daddy gave them distributions. Of course the CPA firm allocated the distributions pro-rata instead of where they actually went.

Figures. I always try to convince my clients if the TPs are paying tax on the income held by the company that at the very least the company should give them the cash to pay that tax. It would be fair.

Here is what I found in Pub 541:

Abandoned or worthless partnership interest. A loss incurred from the abandonment or worthlessness of a partnership interest is an ordinary loss only if both of the following tests are met.

*The transaction is not a sale or exchange.
*The partner has not received an actual or deemed distribution from the partnership

This says the complete opposite of your opion.

How is his answer the opposite?   AM said the remaining basis could be written off as a long term capital loss.  Wouldn't the opposite be no deduction?

AM says it's a capital loss, Pub 541 says ordinary loss

Reduction in liabilities (including nonrecourse debt) blows the "deemed distribution" test.

I guess I have to read Pub 541, but I think when you have a capital investment that becomes worthless you have a capital loss. I am not disputing the Pub, but something does not sound right.

And I agree with Phoebe.