When a partner receives more than a proportionate share of hot assets in a distribution, the transaction is treated as though the partnership distributes a proportionate share of cold assets to the partner and then the partner sells some or all those cold assets back to the partnership at fair market value in exchange for a portion of the hot assets actually received in the distribution.

Question

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This is known as the "mixing bowl" approach, where the partner is deemed to have received a combination of cold assets and hot assets in the distribution. The partner then sells some or all of the cold assets back to the partnership at fair market value in exchange for a portion of the hot assets actually received. This approach is used to ensure that partners are taxed properly on their share of the partnership's assets.

When a Partner Receives More Than a Proportionate Share of Hot