Normally a distribution of property from a partnership does not result in gain recognition. However, a distribution of marketable securities may be treated in part as a distribution of cash that could result in gain recognition.

Question

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When a partnership distributes marketable securities to a partner, the securities are treated as money for the purpose of determining the partner's gain. If the fair market value of the securities exceeds the partner's basis in the partnership, this excess is recognized as gain.

Normally a Distribution of Property from a Partnership Does Not