Martha is a 40% partner in the MMM Partnership with an outside basis of $50,000. MMM distributes $40,000 cash and accrual basis accounts receivable with a basis and fair market value of $20,000. Martha does not recognize gain or loss on the distribution and takes a basis in the cash of $40,000 and a basis in the receivables of $10,000.

Question

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Martha's outside basis ($50,000) is greater than her share of the distribution ($40,000 cash plus $10,000 receivables), so she does not recognize any gain or loss on the distribution. She takes a basis in the cash equal to the amount distributed ($40,000) and a basis in the receivables equal to their fair market value ($10,000).

Martha Is a 40% Partner in the MMM Partnership with an Outside