Distribution to retiring of partners interest in

Distribution to Retiring Partner—Determination of Partner’s Interest in Partnership Property ( 63. ¶ 20,091)
Distribution to Retiring Partner—General Tax Consequences ( 64. ¶ 20,091)
Case Study—Effects of Sec. 754 Election ( 65. ¶ 20,080)
Research Problem—Allocation of Basis Adjustment under Sec. 743(b) ( 66. ¶ 20,081)
Research Problem—Distribution to Retiring Partner under Sec. 736 ( 67. ¶ 20,090)
Answers to Problems
Current Cash Distribution—Consequences to Recipient Partner
31.
$5,000: Pete’s tax basis in his partnership interest was $10,000 at the beginning of the year. Pete’s share of the a.
partnership’s taxable income was $10,000 (one-third of the partnership’s $30,000 taxable income), increasing
his tax basis in the partnership interest to $20,000. Thus, the $25,000 cash distribution will trigger a $5,000
taxable gain to Pete.
Zero. b.
Mickey’s tax basis in his partnership interest at year-end would be $30,000 ($20,000 beginning basis plus c.
$10,000 share of partnership income). The $25,000 cash distribution would generate no gain to Mickey, and
would reduce his tax basis in the partnership interest to $5,000 ($30,000 tax basis in the partnership interest
less $25,000 cash received in the distribution).
Current Property Distribution—Consequences to Recipient Partner
32.
None. a.
Clay will take a carryover basis of $18,000 in the investment property received from the partnership. b.
Clay’s remaining basis in his partnership interest will be $7,000 ($25,000 pre-distribution basis in partnership c.
interest less $18,000 tax basis in property received in the distribution).
Cash Distribution in Partial Liquidation of Partner’s Interest—Consequences to Recipient Partner
33.
None. a.
$5,000 ($30,000 pre-distribution tax basis in partnership interest less $25,000 cash distribution received). b.
The distribution will reduce her economic interest in the partnership from 33% to 20%. To illustrate, Susan c.
owned $2 of every $6 in partnership assets prior to the distribution (one-third). The distribution reduces her
interest in the partnership, but it also reduces the partnership’s remaining assets. Thus, her economic interest
(i.e., percentage interest) in the partnership will not be reduced by half (because both the numerator and the
denominator are changing). In this case, presumably, she received $1 of every $6 of partnership assets in the
distribution. Thus, following the distribution, she should own $1 of every $5 in remaining partnership assets,
leaving her with a 20% interest in the partnership.
Excess Cash Distribution in Partial Liquidation of Partner’s Interest—Consequences to Recipient Partner
34.
$15,000—even though the distribution redeems half his interest in the partnership, it is applied against his a.
aggregate basis in his partnership interest. Accordingly, he recognizes gain in an amount equal to the excess of
the cash distribution over his basis in the entire partnership interest.