Alyce owns a 30% interest in a continuing partnership. The partnership distributes a $35,000 year-end cash payment to Alyce. In a proportionate current (nonliquidating) distribution, the partnership also distributed property (basis of $20,000, fair market value of $30,000) to Alyce. Immediately before the distributions of cash and property, Alyce's basis in the partnership interest was $60,000. As a result of the distribution, Alyce recognizes:
A) No gain or loss.
B) Ordinary loss of $5,000.
C) Capital loss of $5,000.
D) Ordinary gain of $5,000.
E) Capital gain of $5,000.

Question

Quizplus · Accepted Answer

In a proportionate nonliquidating distribution from a partnership, a partner does not recognize gain unless the cash received exceeds the partner's basis in the partnership interest immediately before the distribution. Alyce's basis in the partnership was $60,000 before the distribution. The distribution consisted of $35,000 in cash and property with a basis of $20,000 (totaling $55,000), which is less than her basis in the partnership interest. Therefore, Alyce recognizes no gain or loss.

Alyce Owns a 30% Interest in a Continuing Partnership