Identify which of the following statements is true.
A)If a partnership asset with a deferred precontribution gain is distributed in a nonliquidating distribution to the partner who contributed the asset, the precontribution gain must be recognized by the partner.
B)The partner's basis in the partnership interest is normally reduced by the FMV of property distributed in a nonliquidating distribution.
C)When a current distribution from a partnership reduces the basis of the partnership interest to zero, the partner's interest in the partnership is terminated.
D)All of the above are false.

Question

Quizplus · Accepted Answer

A) This statement is false because if the partnership distributes the contributed asset back to the contributing partner in a nonliquidating distribution, the precontribution gain is not recognized at that time. B) The partner's basis in the partnership interest is reduced by the partnership's basis in the property distributed, not the FMV. C) Reducing the basis of the partnership interest to zero does not automatically terminate the partner's interest in the partnership; it may result in a negative capital account, but the interest itself is not terminated solely by this action.

Identify Which of the Following Statements Is True