Heidi and Teresa Are Equal Partners in the HT Partnership

question 21

Essay

Heidi and Teresa are equal partners in the HT Partnership. The partners formed the partnership seven years ago by contributing cash. Prior to any distributions, the partners each have a $50,000 basis in their partnership interests. On December 31, the partnership makes a proportionate operating distribution to Teresa of $40,000 cash and stock with a fair value of $20,000 (inside basis of $7,000). What is the amount and character of Teresa's recognized gain or loss? What is Teresa's remaining basis in HT?

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Definitions:

Direct Investment

The acquisition of a controlling interest in a foreign business by means such as purchasing a company in the target country or expanding operations of an existing business in that country.

Overseas Production

The manufacturing of goods in a country different from where the products are sold, often to take advantage of lower labor costs or other economic conditions.