The liquidating partner will no longer receive profit and loss allocations of the partnership after the date of termination; however, the partner will still receive a K-1 each year until the final payment is made.
It should also be noted that a liquidation is not considered a sale or exchange that can cause a termination of a partnership interest under Sec. Under both the purchase and liquidation methods discussed above, a partner may have to recognize ordinary income rather than capital gain income.
All payments to a partner in liquidation are treated as either Sec. Payments for goodwill are treated as payments under Sec. 736(a) payments are deductible by the partnership and are ordinary income to the liquidating partner, subject to self-employment tax. 736(b) payments and are considered nondeductible distributions of partnership property.
736(b) for all capital-intensive partnerships or where the partnership agreement specifies that terminating payments may be made for goodwill (Sec. A cash-basis partner should be aware that if the partnership accrues a payment to the partner in its tax year, the partner must recognize that income in the same tax year. These payments generally receive capital gain treatment for the liquidating partner.
Liquidation may be accomplished using deferred payments.