The tax treatment of liquidating distributions of debt to shareholders impacts the amount of gain or loss shareholders report on their tax returns.
Provided the liquidation terminates your entire interest in the partnership, your tax basis in the distributed property is equal to your adjusted basis in the partnership interest minus the cash distributed to you.
Regardless of the amount of cash you receive, your basis in the distributed property is never less than zero.
A loss results when the liquidating distribution is less than the partner's basis in the partnership.
Partners, however, can only take a loss on their returns if it's solely the result of a liquidating distribution of cash, outstanding partnership receivables or inventory items.
To be taxed as a liquidating distribution, however, a partner's interest in the partnership must terminate.