On partner ernie who is an active managing partner in

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?
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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?
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