Question

Partner Z of the XYZ partnership receives a liquidating distribution of the following:

Basis                                  FMV

Cash $40,000                       $40,000

Inventory $30,000                       $45,000

Unrealized receiv. $50,000                       $45,000

1. Z’s basis in her partnership interest was $95,000. What is her gain or loss and the bases of the assets distributed to her?

2. Assume Z’s basis in her partnership interest was $130,000. What is her gain or loss and the bases of the assets distributed to her?

The capital percentages are already factored in because this is the liquidating distribution that Partner Z is receiving (so the amount allocated has factored this in). The question is what is her gain or loss where a partner receives solely cash, unrealized receivables and inventory items (all ordinary income items) in a liquidating distribution.

Answer 1

1. There is no gain or loss. The deficit between inside an outside basis is $25,000($120,000-$95,000) . The base of assets distributed to her as follows:

Beginning basis

Cash	$40,000
Inventory ($30,000- $20,000($30,000/($30,000+$45,000))	$22,000
Unrealized receivables ($50,000-$5,000- $20,000($45,000/($30,000+$45,000))	$33,000

2. Her loss will ne equals to $10,000. Her outside basis of $130,000 minus the total of cash and basis of the assets distributed, $120,000. Her bases in assets distributed will be the same as I'm the hands of the partnership.

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All the best