Question

Madison is a 35% partner in the Total Partnership, a calendar-year-end entity. Madison has an outside basis in his interest in Total Partnership of $198,000, which includes his share of the $45,000 of partnership liabilities. On December 31, Total makes a proportionate distribution of the following assets to Madison:

	BASIS	FMV
Cash	$50,000	$50,000
Inventory	$65,000	$75,000
Land	$50,000	$65,000
Totals	$165,000	$180,000

For an operating distribution, outline the tax consequences (amount and character of recognized gain or loss, basis in distributed assets) of the distribution to Madison.

For a liquidating distribution, outline the tax consequences (amount and character of recognized gain or loss, basis in distributed assets) of the distribution to Timothy.

Discuss the similarities and differences between the tax consequences of the operating distribution and the tax consequences of the liquidation distribution.

In your analysis, include the following:

An introduction

Requirements (don’t forget to show your work)

Conclusion

Answer 1