Question

1. On July 1, the ABC Partnership, a calendar year partnership, distributes to each of its equal partners $10,000 cash and land with a value of $10,000 and a basis of $5,000. A, B and C have outside bases of $20,000, $10,000 and $5,000 respectively. The partnership has the following assets prior to the distribution:

Assets                                                             A.B.                 F.M.V.

                        Cash                                                                            $50,000           $50,000

                        Accounts Receivable                                                   0                      20,000

                        Inventory                                                                     20,000             30,000

                        Land                                                                            30,000             60,000

                        Building                                                                       10,000             50,000

1. Discuss the tax consequences of the distribution to A, B, and C, each of whom has owned his partnership interest for several years.
2. What result to C if he receives the land first and the cash in a subsequent separate distribution on October 1?
3. What result to C in (b), above, if the cash distribution on October 1 is a draw against his share of partnership income, which is $20,000 for the year?

Answer 1

A. If the value of $10000 is more than R's. 50000/- then it will taxable under the head of income from other sources and when land will sold then the capital gain arises after subtracting Indexed value by which land is credited in books from sale value of land is chargeable under the head of income from capital gain.