Under Code Sec. 731(b) , no gain or loss is recognized to a partnership on a distribution to a partner of property, including money. Well, not all the time, apparently.
In Revenue Ruling 2007-40, a partnership owed its partner a guaranteed payment of $800,000. To satisfy its obligation, it transferred a parcel of property worth $800,000, but with an adjusted tax basis of $500,000 to the partner. The IRS held that the partnership incurred $300,000 in gain on the transfer, applying the general income tax principle that a taxpayer recognizes gain when it satisfies an obligation with appreciated property.
Rev Rul 2007-40, 2007-25 IRB