At the beginning of the year, Elsie's basis in the E&G Partnership interest is $60,000. She receives a proportionate nonliquidating distribution from the partnership consisting of $10,000 of cash, unrealized accounts receivable (basis of $0, fair market value $30,000), and inventory (basis of $10,000, fair market value of $20,000). After the distribution, Elsie's bases in the accounts receivable, inventory, and partnership interest are:
A) $0; $10,000; and $40,000.
B) $0; $20,000; and $30,000.
C) $30,000; $10,000; and $10,000.
D) $30,000; $20,000; and $0.
E) None of the above.

Question

Quizplus · Accepted Answer

Elsie's basis in the partnership interest is reduced by the cash received first, then by the basis of the inventory. The accounts receivable have a basis of $0, so they do not affect the basis calculation. Thus, the basis in the partnership interest is $60,000 - $10,000 (cash) - $10,000 (inventory) = $40,000. The basis in the accounts receivable remains $0, and the basis in the inventory is $10,000.

At the Beginning of the Year, Elsie's Basis in the E&G