Question

Partner A has a basis of $25,000 in a partnership interest at a time when the partnership distributes the following items to A in the form of a non-liquidating distribution: $10,000 in cash, $12,000 in accounts receivable in which the partnership has a basis of $6,000, inventory worth $26,000 in which the partnership has a basis of $14,000, and a capital asset worth $10,000 in which the partnership has a basis of $5,000. There is no unrealized depreciation with respect to any of the partnership’s assets. What are the tax consequences to A assuming Section 751(b) is not applicable?

	A.	Partner A’s basis is in the partnership is reduced to $0 and A recognizes no gain or loss on the distribution. Partner A assumes a basis in the distributed property as follows: $4,500 in accounts receivable, $10,500 in inventory, and $0 in the capital asset.
	B.	Partner A’s basis is reduced to $0 and A recognizes a $23,000 ordinary gain attributable to the accounts receivable and inventory. Partner A assumes a basis in distributed property as follows: $12,000 in accounts receivable, $26,000 in inventory, and $0 in the capital asset.
	C.	Partner A’s basis is reduced to $0 and A recognizes a $23,000 ordinary gain attributable to the accounts receivable and inventory and a $10,000 capital gain attributable to the capital asset. Partner A assumes a basis in distributed property as follows: $12,000 in accounts receivable, $26,000 in inventory, and $10,000 in the capital asset.
	D.	Partner A’s basis is reduced to $0 and A recognizes no gain or loss on the distribution. Partner A assumes a basis in the distributed property as follows: $3,600 in accounts receivable, $8,400 in the inventory, and $3,000 in the capital asset.

Answer 1

Answer:-

A)Partner A's basis in the partnership is reduced to $0 and A recognizes no gain no loss on the distribution .Partner A assumes a basis in the distributed property as follows:$4500 in accounts receivable,$10500 in inventory and $0 in the capital assets.

Explanation:-

As cash distribution of partnership will not be taxable assuming it is from already taxed income.Accounts receivable and inventory will be valued at the cost and partner A will recognize the same on cost basis as above.As the capital assets are completely depreciated, the same will be recognized at no cost.