The STUV Partnership owns the following assets on December 30 of the current? year:
Assets |
Partnership's Basis |
FMV |
Cash |
$70,000 |
$70,000 |
Receivables |
0 |
36,000 |
Inventory |
112,000 |
160,000 |
Total |
$182,000 |
$266,000 |
The partnership has no? liabilities, and each? partner's basis in his or her partnership interest is $15,000.On December 30 of the current? year,Sally receives a current distribution of inventory having a $16,625 ?FMV, which reduces her partnership interest from? one-fourth to? one-fifth.
Requirement
What are the tax consequences of the distribution to the? partnership,Sally?,and the other? partners?
Beginning |
Interest Before |
Interest After |
Hypothetical |
||||
Partnership |
Distribution |
Distribution |
Proportionate |
Actual |
|||
Amount |
(1/4) |
(1/5) |
Distribution |
Distribution |
Difference |
||
Sec. 751 assets: |
|||||||
Total Sec. 751 assets |
|||||||
Non-Sec. 751 assets: |
|||||||
Total non-Sec. 751 assets |
Beginning Partnership Amount |
(1) Sally’s Interest Before Distribution 1/4 |
(2) Hypothetical Distribution 1/5 |
(3) Proportionate Distribution (3)= (1)-(2) |
(4) Actual Distribution |
(5) Difference (5)=(4)-(3) |
|
Section 751 assets : |
||||||
Receivables |
36,000 |
9,000 |
7,200 |
1,800 |
0 |
(1,800) |
Inventory |
160,000 |
40,000 |
32,000 |
8,000 |
16,625 |
8,625 |
Total Sec.751 Assets |
196,000 |
49,000 |
39,000 |
10,000 |
16,625 |
6,625 |
Non-Sec 751 assets: |
||||||
Cash |
70,000 |
17,500 |
14,000 |
3,500 |
0 |
(3,500) |
Total Non-Sec 751 assets |
70,000 |
17,500 |
14,000 |
3,500 |
0 |
(3,500) |
In terms of gain, loss or income recognized from the partnership reduction, the partnership will end up recognizing gain of the total distribution amount of Sec.751 assets minus the adjusted basis of those assets.
Inventory = Partnership’s basis x Hypothetical Proportionate Distribution
FMV
= 112,000 x 3500
160,000
= 2,450
Therefore, $6,625-$2,450 = $4,175
Sally has $3,500 in deemed cash distribution and the partnership recognizes gain of $4,175.
The STUV Partnership owns the following assets on December 30 of the current? year: Assets Partnership's...
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