Question

Which of the following statements regarding a partner's basis of inventory received in a liquidating distribution is True?

A) Partners may either increase or decrease the basis in inventory distributed in a liquidating distribution.
B) Partners may only increase the basis in inventory distributed in a liquidating distribution.
C) Partners may only decrease the basis in inventory distributed in a liquidating distribution.
D) None of these statements is True.

Answer 1

C) Partners may only decrease the basis in inventory distributed in a liquidating distribution.

Step-by-step explanation:

Liquidating distribution refers to the absence of dividend distribution that is to be allocated to the shareholders in case of the partial or complete liquidation. In this, the whole equity is allocated along with the profit-sharing

In case fo inventory received based on a partner basis, the partners are only eligible to decrease the inventory basis

hence, the option c is correct