The Crimson Partnership is a service provider. Its assets consist of unrealized receivables (basis $0, value $200,000), cash of $200,000, and land (basis of $280,000, value of $400,000). Assume 25% general partner Jill has a basis in her partnership interest of $130,000. If the ongoing partnership distributes the $200,000 cash to Jill in liquidation of her interest in the partnership, she will recognize ordinary income of $50,000 and a capital gain of $20,000.

Question

Quizplus · Accepted Answer

The distribution of cash to Jill in liquidation of her partnership interest will result in ordinary income to the extent of her share of the partnership's unrealized receivables, which is $50,000 (25% x $200,000). The remaining $150,000 of the distribution will be treated as a capital gain, as it represents a return of her basis in the partnership interest ($130,000) plus her share of the partnership's appreciated land ($20,000).

The Crimson Partnership Is a Service Provider