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NINJA Question –

Partnership JKL has decided to liquidate. Partner J’s adjusted basis in the partnership is $55,000 and he received only equipment (FMV $55,000, adjusted basis to the partnership of $40,000) in complete liquidation of his share of the partnership. What is the amount of gain or loss Partner J will recognize on his personal tax return?

A. Gain of $15,000

B. Partner J may not recognize a loss on the liquidation of the partnership.

C. Loss of $15,000

D. Partner J will not recognize a gain on the liquidation of the partnership.

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B is correct.

The rules for liquidating distributions for a partnership are as follows:

* If a partner receives cash or marketable securities (cash equivalents) in excess of the partner’s adjusted basis, then gain is recognized on that excess.

* If no cash equivalents are distributed, no gain is recognized.

* If a partner receives cash, unrealized receivables, or inventory in a liquidating distribution, a loss may be recognized by the partner equal to the difference between FMV and the partner’s basis.

* If only other property is received, then no loss may be recognized.

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Is there something in the fact pattern that is making D an incorrect answer? I’m sure I’m missing something.

F - 96
A - 99
R - 95
B - 95