DGJ is an equal partnership in which each partner has an outside basis and a capital account balance of $1000. On January 1 of this year, the partnership’s balance sheet is as follows:

Basis/Book		FMV
Inventory	$1800	$6000
Capital Asset	1200	3000
	$3000	$9000
			Capital	Accounts
			Tax/Book	FMV
		Don	$1000	$3000
		Glenn	1000	3000
		Joe	1000	3000
			$3000	$9000

On this date, DGJ distributes the Capital Asset to Don in complete liquidation of his interest in the partnership. In the absence of § 751(b), the tax consequences of this distribution would be as follows:

The normal distribution rules allow Don to avoid his share of the partnership's ordinary income by taking the capital asset in the distribution. Don would have no gain or loss on the distribution and would take a basis in the capital asset of $_______. if and when the capital asset was sold, all gain on the sale would be capital gain; he would never have any ordinary income. Don's share would be shifted to the remaining partners, Glenn and Joe, which would have to report it when the partnership sold the inventory. 

(b) Taking into account § 751(b), what are the tax consequences to the partnership and each of the partners?

Answer rating: 100% (QA)

DAY is equal Parthshe Capital balans 1000 on Janu... View the full answer