Joaquin is a 30 percent partner in the SBD Partnership, a calendar-year-end entity. As of the end of this year, Joaquin has an outside basis in his interest in SBD of $188,000, which includes his share of the $60,000 of partnership liabilities. On December 31, SBD makes a proportionate distribution of the following assets to Joaquin:

a) What are the tax consequences (amount and character of recognized gain or loss, basis in distributed assets) of the distribution to Joaquin if the distribution is an operating distribution?
b) What are the tax consequences (amount and character of recognized gain or loss, basis in distributed assets) of the distribution to Joaquin if the distribution is a liquidating distribution?
c) Compare and contrast the results from parts (a) and (b).

Transcribed Image Text:

Cash Inventory Land Totals Tax Basis $ 40,000 55,000 30,000 $125,000 FMV $ 40,000 65,000 45,000 $150,000