Riley is a 50percent partner in the RF Partnership and has an outside basis of $56,000 at the end of the year prior to any distributions. On December 31, Riley receives a proportionate operating distribution of $6,000 cash and a parcel of land with a $14,000 fair value and an $8,000 basis to RF. What is the amount and character of Riley's recognized gain or loss and what is his basis in his partnership interest?
A)$0 gain, $36,000 basis.
B)$0 gain, $42,000 basis.
C)$0 gain, $50,000 basis.
D)$0 gain, $56,000 basis.

Question

Quizplus · Accepted Answer

Riley's recognized gain is $0 because the distribution is a proportionate operating distribution, which typically does not trigger recognition of gain or loss for the partner receiving it. Riley's basis in his partnership interest after the distribution is calculated by subtracting the cash received ($6,000) from his outside basis prior to the distribution ($56,000) and then adding the basis of the land received ($8,000). This results in a new basis of $56,000 - $6,000 + $8,000 = $58,000. However, the correct calculation for the basis after the distribution should consider the reduction of the outside basis by the cash received and then adjusted by the basis of the land, leading to a corrected basis calculation error in the explanation. The correct basis after considering the distribution should be $56,000 - $6,000 = $50,000, not accounting for the addition of the land's basis in this context, which indicates a mistake in the explanation process. The correct answer should reflect the proper adjustment of the outside basis after a proportionate distribution, which typically would be reduced by the cash received and adjusted for the basis of any property received if applicable. Given the options and the initial explanation approach, there seems to be a misunderstanding in the calculation provided.

Riley Is a 50percent Partner in the RF Partnership and Has