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?Answer 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 How did you come up with the $20,000 in the calc?

Answer 1

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Answers is highlighted in yellow: Solution: $20,000: There is no sence of using $20,000. It is wrongly used in the calculation. Because answer has no connection with this. Even you will find the result of a calculation is not $22,000. e.g. ($30,000-$20,000($30,000/($30,000+$45,000)) = $ 4,000 Calculation will be as follows: No gain or loss Basis to Cash $40,000; Basis to Inventory $22,000; Basis to AR $33,000 Answer: Explanation: In case of Complete liquidating distribution, the sequence will be cash, then hot assets e.g Inventory and unrealized receivables: Thump rule: No gain or loss is recognized in case liquidating distribution, unless distributed cash| does exceed the outside basis of partner. Z's basis in XYZ Less: Cash Distributed Balance $ 95,000 $ 40,000 $ 55,000 This balance will be allocated to the partner in ratio of lower of basis and fair market value: Allocation of Inventory [(30000)/(30000+45000)] * (55000) = $ 22,000 Allocation of AR [(45000)/(30000+45000)] * (55000) = $ 33,000 $ 55,000