Question

The Taurin Partnership (a calendar-year-end entity) has the following assets as of December 31 of the current year:

Tax Basis FMV
Cash $ 50,760 $ 50,760
Accounts receivable16,920 33,840
Inventory 88,200 130,080
Totals 155,880 214,680
On December 31, Taurin distributes $16,920 of cash, $11,280 (FMV) of accounts receivable, and $43,360 (FMV) of inventory to Emma (a one-third partner) in termination of her partnership interest. Emma’s basis in her partnership interest immediately prior to the distribution is $44,240. What is Emma’s basis in the distributed assets?

Answer 1

Emma's basis in the distributed assets is $44,240.

Step-by-step explanation:

Emma's basis in the distributed assets can be calculated by determining the gain or loss she recognizes on the distribution. To determine the gain or loss, we compare the FMV of the distributed assets to Emma's basis in her partnership interest, which is $44,240. The FMV of the distributed assets is $16,920 (cash) + $11,280 (accounts receivable) + $43,360 (inventory) = $71,560. Since the FMV of the distributed assets exceeds Emma's basis, she recognizes a gain equal to the excess of FMV over basis, which is $71,560 - $44,240 = $27,320.

Therefore, Emma's basis in the distributed assets is $71,560 - $27,320 = $44,240.