Sophia Shore owns a one-third interest in the Seaside Partnership. Her basis for
ID: 2486119 • Letter: S
Question
Sophia Shore owns a one-third interest in the Seaside Partnership. Her basis for her interest is $15,000. The partnership prior to the distribution held the following assets:
Basis
FMV
Cash
$40,000
$40,000
Accounts receivable
6,000
15,000
Land
17,500
35,000
Sophia and each of her partners receive as a current distribution $10,000 cash and accounts receivable with a basis to the partnership of $1,200 and a FMV of $3,000.
a. What gain will Sophia realize on the distribution?
b. What gain or loss will she recognize on the distribution?
c. What gain or loss will the partnership recognize on the distribution?
d. What is the basis to Sophia of her partnership interest after the distribution?
e. How would your answers to (b), (c), and (d) differ, if at all, if the distribution had been in complete liquidation of Sophia's interest in the partnership?
Basis
FMV
Cash
$40,000
$40,000
Accounts receivable
6,000
15,000
Land
17,500
35,000
Explanation / Answer
Answer:a No gain or loss is realized. Sophia is merely receiving a portion of her aggregate interest in the underlying assets of the partnership.
Answer:b As no gain is realized, no gain is recognized.
Answer:c No gain or loss is recognized by the partnership in this pro rata distribution.
Answer:d $3,800. Sophia's basis in her partnership interest is reduced by the cash and the basis to the partnership of the unrealized receivables distributed to her, $15,000 - ($10,000 + $1,200).
Answer:e
(b.) Sophia would have recognized a capital loss of $3,800.
(c.) Same answer as in (c) above.
(d.) $0. Sophia would no longer have a partnership interest.
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