is not a material income-producing factor to the partnership. On December 31, 2015, partner Ernie (who is an active managing partner in the partnership) receives a distribution of $120,000 cash in liquidation of his partnership interest under § 736. Ernie’s outside basis for the partnership interest immediately before the distribution is $90,000. How much is Ernie’s gain or loss on the distribution and what is its character? Page 6 of 7
10. Jeremy is an active partner who owns a 30% interest in the JS LLP (in which capital is not a material income-producing factor). Partnership assets consist of land (fair market value of $200,000, basis of $140,000), accounts receivable (fair market value of $200,000, basis of $0), and cash of $400,000. JS distributes $220,000 of the cash to Jeremy in liquidation of his interest. In addition, Jeremy is relieved of his $40,000 share of the LLP’s liabilities. The total payment includes $20,000 for Jeremy’s share of JS goodwill (for which the agreement does not provide). Jeremy’s basis in the partnership interest (including his share of the partnership’s liabilities) is $120,000 immediately before the distribution. How much gain or loss does Jeremy recognize and what is its character? How much can the partnership deduct? Page 7 of 7
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- Spring '11
- Balance Sheet, Chapter 10, Chapter 11, Corporate Tax, BIKE Partnership, POD Partnership