A partnership sells an asset for a gain.The asset had been transferred to the partnership two years ago by Partner J in exchange for a partnership interest.The asset was worth substantially more than its cost as of the transfer date.The partnership gain will allocated to all of the partners in accordance with their profit and loss sharing ratios.

Question

Quizplus · Accepted Answer

The gain from the sale of the asset must be allocated to Partner J to the extent of the built-in gain at the time of the transfer, as per the "substantial economic effect" rules and Section 704(c) of the Internal Revenue Code.

A Partnership Sells an Asset for a Gain