Paulas basis in her partnership interest is $60,000. In liquidation of her interest, the partnership makes a

Question:

Paula’s basis in her partnership interest is $60,000. In liquidation of her interest, the partnership makes a proportionate distribution to Paula of $20,000 of cash and inventory (basis of $5,000 and value of $7,000). (Assume the partnership also liquidates.)

a. How much gain or loss, if any, will Paula recognize on the distribution?

b. What basis will Paula take in the inventory?

c. What are the tax consequences to the partnership?

d. Can you recommend an alternative distribution? Explain.

e. Would your answer to (a) or (b) change if this had been a nonliquidating distribution? Explain.

Distribution
The word "distribution" has several meanings in the financial world, most of them pertaining to the payment of assets from a fund, account, or individual security to an investor or beneficiary. Retirement account distributions are among the most... Liquidation
Liquidation in finance and economics is the process of bringing a business to an end and distributing its assets to claimants. It is an event that usually occurs when a company is insolvent, meaning it cannot pay its obligations when they are due.... Partnership
A legal form of business operation between two or more individuals who share management and profits. A Written agreement between two or more individuals who join as partners to form and carry on a for-profit business. Among other things, it states...