Question

What happens when there is a decrease in the partner's outside basis?

1) The partner's outside basis remains the same
2) The partner's outside basis increases
3) The partner's outside basis decreases
4) The partner's outside basis cannot be determined

Answer 1

When there is a decrease in the partner's outside basis in a business partnership, it means that the partner's investment in the partnership has decreased. This can happen if the partner withdraws cash or other assets from the partnership, or if there are losses that reduce the partner's share of the partnership's capital.

Step-by-step explanation:

When there is a decrease in the partner's outside basis in a business partnership, it means that the partner's investment in the partnership has decreased. This can happen if the partner withdraws cash or other assets from the partnership, or if there are losses that reduce the partner's share of the partnership's capital. The partner's outside basis is used to determine the tax consequences of partnership activities, such as deductions and distributions.