All of the following statements are true regarding nonliquidating distributions of a partnership except:
A)If money is distributed in excess of the partnership interest,the partner receiving the distribution has capital gain.
B)In no circumstances will the partner or the partnership recognize gain or loss from a nonliquidating distribution.
C)In no circumstances may the partner's basis in the partnership interest be reduced below zero as a result of a nonliquidating distribution.
D)If,after money distributions reduce the partnership basis,the adjusted basis of distributed property does not exceed the partner's basis in the partnership interest,the basis of the distributed property carries over to the partner.

Question

Quizplus · Accepted Answer

This statement is not true. In some circumstances, a partner or the partnership may recognize gain or loss from a nonliquidating distribution. For example, if the distributee partner assumes a liability in excess of their basis in the partnership interest, they will recognize gain on the excess amount. Additionally, if the distributed property has a fair market value in excess of its basis in the hands of the partnership, the partnership will recognize gain on the excess amount.

All of the Following Statements Are True Regarding Nonliquidating Distributions