Fundamentals of Taxation 2011 4th Edition by Ana Cruz, Debra Prendergast, Dan Schisler, Michael Deschamps

Exercise 15

Molly, a 30% partner in XYZ partnership, has a basis of $55,000 in her partnership interest. She receives a cash distribution of $54,000 at year-end. The distribution has what tax effect on Molly? a. No gain or loss is recognized, and she has a $55,000 basis in her partnership interest.
B) No gain or loss is recognized, and she has a $1,000 basis in her partnership interest.
C) She has a recognized gain of $37,500 and a basis of $0 in her partnership interest.
D) She has a recognized gain of $55,000 and a basis of $0 in her partnership interest.