Final answer:
Tyson's basis in the distributed inventory is $4,000, land A is $12,000, and land B is $4,000. This is due to the allocation of the basis post-cash distribution and the rule that basis in distributed property cannot exceed the partnership's basis in that property.
Step-by-step explanation:
When a partnership makes a distribution to a partner, the basis of the property distributed is based on the partner's basis in their partnership interest just before the distribution, as well as the partnership's basis in the property (inside basis).
Tyson's basis in the KT Partnership interest before the distribution is $23,000. The distribution consisted of cash ($16,000), inventory ($10,000 fair value/$4,000 inside basis), land A ($8,000 fair value/$12,000 inside basis), and land B ($6,000 fair value/$4,000 inside basis).
To calculate Tyson's basis in the distributed properties, we must first subtract the cash received, which leaves $7,000 of basis to be allocated to the other assets (Tyson's basis of $23,000 minus the $16,000 cash received).
- Because the inventory has an inside basis lower than its fair value, start with allocating basis to the inventory, which will be its inside basis of $4,000.
- Land A has a higher inside basis than its fair value, so no basis is allocated to Land A.
- The remaining $3,000 ($7,000 - $4,000 for inventory) is allocated to Land B.
Therefore, Tyson's basis in the inventory is $4,000, in Land A there is no basis to allocate (remain at $12,000), and in Land B is $3,000. However, because the partnership's inside basis in Land B was $4,000, and as per IRC Section 732(b), Tyson's basis cannot exceed the partnership's inside basis in the property, Tyson's basis in Land B is limited to $4,000. Thus, option d $4,000 inventory, $12,000 land A, $4,000 land B is correct.