Question

The ELF Partnership distributed $20,000 cash to Emma in a proportionate, nonliquidating distribution. Emma's basis in her partnership interest was $12,000 immediately before the distribution. As a result of the distribution, Emma's basis is reduced to $0 and she recognizes an $8,000 gain.

a. true
b. false

Answer 1

The statement is true. In a nonliquidating distribution, the partner's basis in their partnership interest is reduced by the amount of the distribution.

Step-by-step explanation:

The statement is true.

In a nonliquidating distribution, when a partnership distributes cash or property to a partner, the partner's basis in their partnership interest is reduced by the amount of the distribution.

In this case, Emma's basis in her partnership interest was $12,000 before the distribution. Since she received $20,000 in cash, her basis is reduced to $0, resulting in an $8,000 gain.