Question

Please explain the difference

1. Under which of the following circumstances will a partner recognize a gain from a non-liquidating distribution?

a. A partner will never recognize a gain from a non-liquidating distribution.

b. A partner will recognize a gain from a non-liquidating distribution when the partnership distributes property other than money with an inside basis greater than the partner's basis in the partnership interest.

c. A partner will recognize a gain from a non-liquidating distribution when the partnership distributes money in an amount that is less than the partner's basis in the partnership interest.

d. A partner will recognize a gain from a non-liquidating distribution when the partnership distributes money in an amount that is greater than the partner's basis in the partnership interest.

2 Under which of the following circumstances will a partner recognize a loss from a non-liquidating distribution?

a. A partner will never recognize a loss from a non-liquidating distribution.

b. A partner will recognize a loss from a non-liquidating distribution when the partnership distributes property other than money with an inside basis greater than the partner's basis in the partnership interest.

c. A partner will recognize a loss from a non-liquidating distribution when the partnership distributes money in an amount that is less than the partner's basis in the partnership interest.

d. A partner will recognize a loss from a non-liquidating distribution when the partnership distributes money in an amount that is greater than the partner's basis in the partnership interest.

Answer 1

Answer - 1) Option D. A partner will recognize a gain from a non-liquidating distribution when the partnership distributes money in an amount that is greater than the partner's basis in the partnership interest.

Answer -2) Option A. A partner will never recognize a loss from a non-liquidating distribution.

Explanation - As per Sec 731(b) Generally, Partnership does not recognize gains or losses from proportionate non-liquidating distribution. However, Gain is recognized by the distributee partner if cash received exceeds the partner's outside basis in the partnership immediately before the distribution. And a partner who receives non-liquidating cannot recognize a loss.