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

Question

Quizplus · Accepted Answer

Tyson's basis in KT is $20,000. The total distribution he receives is $32,000 ($16,000 cash + $16,000 land fair value). Since the distribution exceeds his basis by $12,000, he recognizes a capital gain of $12,000. However, the question asks for the gain or loss from the distribution, and since the distribution is liquidating, the gain is not recognized until the basis is reduced to zero, resulting in no immediate gain or loss.

Tyson Is a 25% Partner in the KT Partnership