Partner Tom transferred property (basis of $20,000; fair market value of $50,000) to the TUV Partnership in exchange for a partnership interest. At a later date, when Tom's outside basis for his partnership interest was $70,000, Tom received a $50,000 cash distribution from the partnership. Which one of the following statements is not true?

Question

Quizplus · Accepted Answer

If the transaction is treated as a disguised sale, Tom's basis in the partnership interest will be the same as his basis in the property transferred, which is $20,000. Therefore, statement B is true. Statement A is also true because a cash distribution shortly after a property contribution could trigger a presumption that the transaction was a disguised sale. Statement C is true because if Tom would have made the property contribution regardless of any anticipated distributions, the IRS is less likely to challenge the transaction as a disguised sale. Statement D is false because if the transaction is treated as a disguised sale, the partnership's basis in the property would remain at $20,000, which is Tom's basis in the partnership interest.

Partner Tom Transferred Property (Basis of $20,000; Fair Market Value