Question

In a distribution, T, one third partner, receives $6000 in cash and capital assets of $9000....

In a distribution, T, one third partner, receives $6000 in cash and capital assets of $9000. The total assets of the partnership consist of cash of $9000 and capital assets of $36,00. Which of the following statements is true regarding partner T if the basis in T's partnership interest is $14,000? A. T has received a disproportionate distribution B T must report a capital gain of $1000 C. T must report an ordinary loss of $1000 or D. There is no tax consequences to T

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Answer #1

There is no tax consequences to T. (which is Option D)

____

Explanation:

As per the applicable rules (Section 731(b)), a partner is required to report a gain only if the money (cash) received by him in the distribution exceeds his partnership interest in the firm immediately before the distribution. In the given case, the value of T's partnership interest is $14,000 before distribution which exceeds the value of cash of $6,000 received by T under distribution. Therefore, T is not required to report any capital gain and therefore, there will be no tax consequences to T in the given case.

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