DANIELA IS A 25 % PARTNER IN THE JRD PARTNERSHIP. ON JANUARY, 1, JRD MAKES A PRO
ID: 2394834 • Letter: D
Question
DANIELA IS A 25 % PARTNER IN THE JRD PARTNERSHIP. ON JANUARY, 1, JRD MAKES A PROPORTIONATE, LIQUIDATING DISTRIBUTION OF $16,000 CASH, INVENTORY WITH A $16,000 CASH, INVENTORY WITH A $16,000 fair value ( INSIDE BASIS $8,000), AND ACCOUNTS RECEIVABLE WITH A FAIR VALUE OF $8,000 (INSIDE BASIS OF $12,000) TO DANIELA.
JRD HAS NO LIABILITIES AT THE DATE OF THE DISTRIBUTION. DANIELA'S BASIS IN JRD IS $20,000.
WHAT IS THE AMOUNT AND CHARACTER OF DANIELA'S (GAIN OR LOSS) FROM THE DISTRIBUTION?
MULTIPLE CHOICE
1. $0
2. $16,000 ORDINARY INCOME
3. $16,000 CAPITOL GAIN
4. $20,000 CAPITOL GAIN
Explanation / Answer
Answer is option 1. $0
Daniela will not recognize any gain or loss on the distribution. She will instead reduce the basis of the inventory she receives in complete liquidation of her interest.