The RST partnership has three members, each owning a one-third interest in all i

Question

The RST partnership has three members, each owning a one-third interest in all items. One of the members is Randy. Randy has a tax basis in his RST interest of $50,000. In the following INDEPENDENT situations, Randy receives a distribution from RST. In each case determine the tax consequences to Randy, including whether he recognizes a gain or a loss, the basis of property that he receives, and the basis that remains with his partnership interest.

Remember that when a partnership is involved, the term “liquidating” means that the member’s interest is being liquidated NOT that the partnership itself is being liquidated.

RST distributes $40,000 of cash to Randy in a nonliquidating distribution.

RST distributes $40,000 of cash to Randy in a liquidating distribution.

RST distributes a capital asset with FMV of $220,000 and tax basis of $30,000 to Randy in a nonliquidating distribution.

RST distributes a capital asset with FMV of $220,000 and tax basis of $30,000 to Randy in a liquidating distribution.

RST distributes inventory with FMV of $220,000 and tax basis of $30,000 to Randy in a nonliquidating distribution.

RST distributes inventory with FMV of $220,000 and tax basis of $30,000 to Randy in a liquidating distribution.

RST distributes a capital asset with FMV of $220,000 and tax basis of $30,000 and inventory with FMV of $130,000 and a tax basis of $70,000 to Randy in a nonliquidating distribution.

RST distributes a capital asset with FMV of $220,000 and tax basis of $30,000 and inventory with a FMV of $130,000 and a tax basis of $70,000 to Randy in a liquidating distribution.

Explanation / Answer

1. Non-liquidating distribution of cash.

In the case of non-liquidating distribution, any amount received by partner is tax exempt upto the amount of outside basis of the partner. In he given case, Randy has received $40,000 in cash and his taxx basis is $50,000. Since distribution is less than the tax basis, distribution is tax free in the hands of Randy. His basis in the business will reduce to $10,000.

2. liquidating distribution.

When a partner liquidates his interest in partnership, then he should recoginze a gain if the distribution amount exceeds his tax basis in such partnership. Randy's tax basis is $50,000 and he received cash of $40,000. Therefore, no gain will be recognized in the books of Randy. His basis in partnership will be NIL as he is ceased to be partner.

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.