When does a partner recognize gain on a distribution?
A)In a liquidating distribution when the fair market value of the property received exceeds partnership interest basis.
B)In a nonliquidating distribution and the property received exceeds the fair market value of the partnership interest.
C)In a nonliquidating distribution and the cash received exceeds the basis of the partnership interest.
D)Gain is not recognized until the property received for the partnership interest is sold.

Question

Quizplus · Accepted Answer

In a nonliquidating distribution, a partner must recognize gain only if the cash received exceeds the basis of the partner's interest in the partnership immediately before the distribution. This is because the distribution reduces the partner's basis in the partnership, and if the cash received is more than this basis, it represents a gain.

When Does a Partner Recognize Gain on a Distribution