To be taxed as a liquidating distribution, however, a partner's interest in the partnership must terminate.
Only partners who receive a liquidating distribution of cash may have an immediate taxable gain or loss to report.
Calculate the early withdrawal penalty you owe on a non-qualified distribution using Form 5329.
If you qualify for an exception to the early withdrawal penalty, you use the same form to note the exception.
Since this money was withheld from the liquidation and paid to the government, it decreases your tax liability.Figure the taxable and nontaxable portion of your distribution.Since you're liquidating the entire IRA, it won't matter whether you have a traditional or a Roth IRA: The amount of nondeductible contributions to the account won't be taxable but any earnings or deductible contributions will be taxable.The penalty equals 10 percent of the taxable portion of the non-qualified distribution.Report the amount of federal income tax withholding from your liquidation on Line 62 of Form 1040 or Line 36 of Form 1040A.