Question

18 Required information (The following information applies to the questions displayed below.) The Taurin Partnership (calendar year-end) has the following assets as of December 31 of the current year. Part 1 of 3 FMV 57 Tax Basis 50,520 $ 50,520 16,840 33,680 87,900 129,660 $ 155,260 $213,860 Cash Accounts receivable Inventory Totals Oints Skipped eBook On December 31, Taurin distributes $16,840 of cash, $11,227 (FMV) of accounts receivable, and $43.220 (FMV) of Inventory to Emma (a one-third partner) in termination of her partnership interest. Emma's basis in her partnership interest immediately prior to the distribution is $44,063. References a. What is the amount and character of Emma's recognized gain or loss on the distribution? Neither gain nor loss recognized O $29,753 ordinary income O $9,035 ordinary loss $29,753 capital gain $9,035 capital loss

Answer 1

Part A

Option A

Neither gain nor loss recognized

Part B

	Basis
Cash	$16840
Accounts receivable	$4377
Inventory	$22846

As only cash, accounts receivable, and inventory are distributed by Taurin, and the adjusted bases of the property distributed > her basis in the partnership, only the bases of the hot assets will be reduced by Emma. Three step process to allocate the basis to the distributed property are as follows:

1. Emma assigns a basis of $16840 (1/3 * $50520) to the cash, $5613 to the accounts receivable (1/3 *16840 ) and $29300 (1/3 * $87900) to the inventory. Since the sum ($47,000) exceeds her basis in Taurin, she has a required decrease of $7690 ($51753 – 44063).
2. Next there is allocation of required decrease to the assets with unrealized depreciation. As there are no such assets, this step is to be skipped.
3. The basis of the assets is decreased by Emma in proportion to their relative adjusted bases. Accounts receivable: Basis allocation = $7690 × ($5613/(5613+29300)) = $1236

Inventory: Basis allocation = $7,690 × ($29300/(5613+29300)) = $6454

Emma’s basis in the distributed assets after completing the allocation are:

Cash $16840

Accounts receivable ($5613 - $1236) = $4377

Inventory ($29300-6454) = $22846

Part C -1

Option E

$9035 of capital loss

Capital loss = adjusted bases – Emma’s partnership interest = $51753 – $60788 = -$9035

Part C-2

	Basis
Cash	$16840
Accounts receivable	$5613
Inventory	$29300

Emma’s basis in the distributed assets = partnership’s basis in the assets