Example of nonliquidating distribution
When property is distributed to a partner, then the partnership must treat it as a sale at fair market value ().
The partner's capital account is decreased by the FMV of the property distributed.
On the other hand, individual shareholders often prefer that the distribution be treated as a redemption, for three reasons: A distribution qualifies as a stock redemption only if it significantly reduces the interest of the shareholder in the corporation.
Generally, losses are only recognized in a liquidating distribution.