1. When a partner receives a distribution of cash, inventory and a vehicle, his

Question

1. When a partner receives a distribution of cash, inventory and a vehicle, his outside basis is first allocated to the inventory, then to the cash and then to the vehicle. (t/f)

2. If a partner receives a non-liquidating cash distribution, the partner will recognize a loss if the cash distributed is less than the partner's outside basis at the time of the distribution. (t/f)

3. When a partner receives a distribution of cash, inventory and a vehicle, his outside basis is first allocated to the inventory, then to the cash and then to the vehicle. (t/f)

Explanation / Answer

Answer:

1. False

The partner assigns a basis to the money, inventory, and unrealized receivables equal to the partnership's basis in the distributed assets. Therefore, the outside basis is first allocated to the cash, inventory and then vehicle.

2. False

If a partner receives a non-liquidating cash distribution, the partner will recognize a gain if cash distribution exceeds the partner's outside basis. Hence, loss is never recognized in  non-liquidating cash distribution.

3. False

The partner assigns a basis to the money, inventory, and unrealized receivables equal to the partnership's basis in the distributed assets. Therefore, the outside basis is first allocated to the cash, inventory and then vehicle.

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