Question

alyce owns a 30% interest in a continuing partnership. the partnership distributes a $35,000 year-end cash payment to alyce. in a proportionate current (nonliquidating) distribution, the partnership also distributed property (basis of $20,000, fair market value of $30,000) to alyce. immediately before the distributions of cash and property, alyce's basis in the partnership interest was $60,000. as a result of the distribution, alyce recognizes:

Answer 1

Alyce does not recognize any gain from the nonliquidating distribution as the total value of the distribution (cash and property) did not exceed her initial basis in the partnership interest, which was $60,000.

Step-by-step explanation:

Understanding Partnership Distributions and Tax Implications

When a partner in a partnership receives a distribution, the tax consequences depend on several factors, including the partner's basis in the partnership interest and the nature of the distribution. In the scenario provided, Alyce owns a 30% interest in a continuing partnership and received both a cash and a property distribution.

The first step is to determine the tax impact of the cash distribution. Alyce received a $35,000 cash distribution. Since this is a current distribution, she must compare the distribution amount to her basis in the partnership interest. Alyce's basis in the partnership before the distribution was $60,000. The cash distribution does not exceed her basis, therefore, she does not recognize any gain on this portion of the distribution. Her basis is reduced by the amount of the cash distribution, resulting in a post-distribution basis of $25,000 ($60,000 - $35,000).

Next, we consider the property distribution. The partnership has distributed property with a basis of $20,000 and a fair market value of $30,000. For tax purposes, Alyce's basis in the distributed property will be equal to the partnership's basis in the property, which is $20,000. This does not trigger any gain recognition for Alyce as the distribution is not in excess of her basis in the partnership interest.

After both distributions, Alyce's remaining interest in the partnership is $25,000 (post-cash distribution) minus the basis of the distributed property ($20,000), leaving her with an adjusted basis of $5,000 in the partnership.

To summarize, Alyce does not recognize any gain from the nonliquidating distribution of cash and property because the total distribution did not exceed her initial basis in the partnership interest.