Which of the following statements is correct regarding the manner in which partnership liabilities are reflected in the partners' bases in their partnership interests?
A) Nonrecourse debt is allocated to the partners based on the partners' economic risk of loss.
B) Recourse debt is allocated to the partners according to their profit-sharing ratios.
C) An increase in partnership debts results in a decrease in the partners' bases in the partnership interest.
D) A decrease in partnership debt is treated as a distribution from the partnership to the partner and reduces the partner's basis in the partnership interest.
E) Partnership debt is not reflected in the partners' bases in their partnership interests.

Question

Quizplus · Accepted Answer

A decrease in partnership debt is indeed treated as a distribution from the partnership to the partner, which can reduce the partner's basis in the partnership interest. This reflects the principle that when a partnership's debt decreases, the partners are considered to have received a distribution of value, which must be accounted for in their individual capital accounts and bases in the partnership.

Which of the Following Statements Is Correct Regarding the Manner