Partner Z received a current distribution from the XYZ Partnership consisting of $3,000 cash and partnership inventory (FMV $10,000 and basis $7,800).The distribution did not change Z's profit and loss sharing ratio.Immediately prior to the distribution, Z's outside basis in his partnership interest was $11,000.Because of the distribution Z must:

Question

Quizplus · Accepted Answer

In this scenario, Partner Z must recognize no gain or loss and reduce their outside basis to $200. This is because the distribution is a non-liquidating distribution, and the partner's basis in the partnership interest must be decreased by the money received ($3,000) and the partnership's basis in the distributed inventory ($7,800), totaling a reduction of $10,800. Starting with an outside basis of $11,000, after reducing it by $10,800, the new outside basis is $200.

Partner Z Received a Current Distribution from the XYZ Partnership