In a proportionate liquidating distribution in which the partnership is also liquidated, Ralph received cash of $30,000, accounts receivable (basis of $0 and fair market value of $20,000), and a desk (basis of $0 and fair market value of $1,000). Immediately before the distribution, Ralph's basis in the partnership interest was $40,000. Ralph realizes and recognizes a loss of $10,000, and his basis is $0 in both the accounts receivable and the desk.

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In a liquidating distribution, Ralph's basis in the partnership interest is first reduced by the cash received. The remaining basis is then allocated to the non-cash assets received. Since Ralph's basis in the partnership was $40,000 and he received $30,000 in cash, he has $10,000 basis left to allocate to the accounts receivable and the desk. Therefore, Ralph does not recognize a loss, and his basis in the non-cash assets is not $0.

In a Proportionate Liquidating Distribution in Which the Partnership Is