Meritt is a partner in the McPherson Partnership. At the close of the current year, Meritt's basis in the partnership is $25,000.
I.If the partnership distributes cash of $7,500 to Meritt, she must report the cash as income.
II.If the partnership distributes property with a basis of $12,000 and a fair market value of $15,000, Meritt must report $3,000 as income.

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question

Meritt is a partner in the McPherson Partnership. At the close of the current year, Meritt's basis in the partnership is $25,000.
I.If the partnership distributes cash of $7,500 to Meritt, she must report the cash as income.
II.If the partnership distributes property with a basis of $12,000 and a fair market value of $15,000, Meritt must report $3,000 as income.
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A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Quizplus · Accepted Answer

Neither statement is correct because cash distributions and distributions of property to a partner generally do not result in taxable income to the partner, as long as the distributions do not exceed the partner's basis in the partnership.

Meritt Is a Partner in the McPherson Partnership