The LMO Partnership distributed $30,000 cash to Laura in a proportionate,nonliquidating distribution.Laura's basis in her partnership interest was $25,000 immediately before the distribution.As a result of the distribution,Laura's basis is reduced to ($5,000)(negative)and she recognizes no gain or loss.

Question

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In a nonliquidating distribution, a partner's basis cannot be reduced below zero. Laura's basis would be reduced to zero, and she would recognize a gain of $5,000.

The LMO Partnership Distributed $30,000 Cash to Laura in a Proportionate,nonliquidating