Consider the facts of problem 49. Assume that rather than property 1, Karen had received the accounts receivable and $15,000 cash in complete liquidation of her interest in the partnership.

a. Would Section 751

(b) apply to the distribution?

b. How much gain will the partnership recognize in connection with the distribution?

c. What would be the character of the partnership’s gain (i.e., ordinary income or capital gain)?

problem 49

Challenge Partners had the following balance sheets at December 31:

On that date, it distributed Property 1 to Karen in complete liquidation of her interest in the partnership.

a. Will Section 751

(b) apply to this distribution?

b. Will Karen recognize any income or gain in connection with the distribution?

c. What will be Karen's tax basis in Property 1?

Transcribed Image Text:

Cash Accounts Receivable Property 1 Property 2 TOTAL ASSETS Capital, Tina Capital, Jane Capital, Karen TOTAL CAPITAL Basis 30,000 0 54,000 36,000 120,000 40,000 40,000 40,000 120,000 FMV 30,000 45,000 60,000 45,000 180,000 60,000 60,000 60,000 180,000