Question

Which of the following statements regarding a partner's basis adjustments is true?

a. Relief of partnership debt increases a partner's tax basis.
b. A partnership fine or penalty paid by the partnership does not affect a partner's basis.
c. A partner's basis may never be reduced below zero.
d. A partner must adjust his basis for ordinary income (loss) but not for separately stated items.

Answer 1

Relief of partnership debt increases a partner's tax basis.

Step-by-step explanation:

The correct statement regarding a partner's basis adjustments is (a) Relief of partnership debt increases a partner's tax basis.

When a partnership has debt relief, it increases a partner's tax basis. This means that the partner's ownership interest in the partnership is increased, and it can have positive tax implications for the partner.

Option (a) is the only correct statement among the given options. Option (b) is incorrect because a partnership fine or penalty paid by the partnership can affect a partner's basis. Option (c) is incorrect because a partner's basis can be reduced below zero in certain circumstances. Option (d) is incorrect because a partner must adjust their basis for both ordinary income (loss) and separately stated items.