Daniela is a 25% partner in the JRD Partnership.On January 1,JRD makes a proportionate,liquidating distribution of $16,000 cash,inventory with a $16,000 fair value (inside basis $8,000),and accounts receivable with a fair value of $8,000 (inside basis of $12,000)to Daniela.JRD has no liabilities at the date of the distribution.Daniela's basis in JRD is $20,000.What is the amount and character of Daniela's gain or loss from the distribution?

Question

Quizplus · Accepted Answer

Daniela's basis in the partnership is $20,000. The total distribution she receives is $16,000 cash + $16,000 inventory + $8,000 accounts receivable = $40,000 fair value. However, the distribution is proportionate and liquidating, and her basis is reduced by the inside basis of the distributed assets. The cash reduces her basis by $16,000, and the inventory and accounts receivable reduce it by their inside bases ($8,000 + $12,000 = $20,000). Therefore, her basis is fully used up, and there is no gain or loss.

Daniela Is a 25% Partner in the JRD Partnership