Steve Sells His 20% Partnership Interest Having a $28,000 Basis

question 52

Multiple Choice

Steve sells his 20% partnership interest having a $28,000 basis to Nancy for $40,000 cash. At the time sale, the partnership has no liabilities and its assets are as follows: $$\begin{array} { | l | l | l | } \hline & \text { Basis } & \text { FMV } \\\hline \text { Cash } & \$ 20,000 & \$ 20,000 \\\hline \text { Unrealized receivables } & 0 & 40,000 \\\hline \text { Inventory } & 10,000 & 40,000 \\\hline \text { Land (Sec. 1231) } & 110,000 & 100,000 \\\hline\end{array}$$ The receivables and inventory are Sec. 751 assets. There is no agreement concerning the allocation o sales price. Steve must recognize

• A) $12,000 capital gain.
• B) no gain or loss.
• C) $12,000 ordinary income.
• D) $14,000 ordinary income and $2,000 capital loss.

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Definitions:

Accidentally

Occurring by chance or without intentional cause.

Wrongful Conduct

Actions or behaviors that are illegal or morally incorrect according to the law and ethical standards.

Tort

An act of civil misconduct that inflicts loss or damage on a victim, leading to the legal responsibility of the perpetrator who carried out the act.

Crime

An act or omission that violates a law which results in a punishment.