A nonliquidating distribution of cash or property from the partnership to a partner is generally treated as a tax-free return of capital to the extent of a partner's basis.

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A nonliquidating distribution of cash or property from the partnership to a partner is generally treated as a tax-free return of capital to the extent of a partner's basis, meaning it is not taxed as income but reduces the partner's investment in the partnership. However, if the distribution exceeds the partner's basis, the excess is treated as gain that may be subject to taxation.

A Nonliquidating Distribution of Cash or Property from the Partnership